Some Twitter employees have expressed relief that Elon Musk appears to have decided against owning the company. Photo / AP
Elon Musk swooped in and exposed Twitter's lack of business and financial prospects. After criticising the company's weaknesses, he now wants to back out of buying it.
For years, Twitter was a runner-up social media company. It never grew to the size and scale of a Facebook or an Instagram. It simply muddled along.
Then, Elon Musk, a power user of the service, stormed in. He offered US$44 billion ($72 billion) to buy Twitter and declared that the company could perform far better if he were in charge. He disparaged Twitter's executives, ridiculed its content policies, complained about the product and confused its more than 7,000 employees with his pronouncements. As Musk revealed the company's lack of business and financial prospects, Twitter's stock plunged more than 30 per cent.
Now, as Musk, a billionaire, tries to back out of the blockbuster deal, he is inexorably leaving Twitter worse off than it was when he said he would buy it. With each needling tweet and public taunt, Musk has eroded trust in the social media company, walloped employee morale, spooked potential advertisers, emphasised its financial difficulties and spread misinformation about how Twitter operates.
"His engagement with Twitter took a severe toll on the company," said Jason Goldman, a member of Twitter's founding team who has also served on its board of directors. "Employees, advertisers and the market at large cannot have conviction in a company whose path is unknowable and which will now go to court to complete a transaction with a bad-faith actor."
The precarious situation underscores why Twitter is set to sue Musk as soon as this week to force a completion of the deal. The court battle is likely to be protracted and immense, involving months of expensive litigation and high-stakes negotiations by elite lawyers. A resolution is far from certain — Twitter might win, but, if it loses, Musk could walk away by paying a breakup fee. Or the two sides could renegotiate or settle.
On Monday, the damage that Musk, 51, has inflicted was evident. Twitter's stock plunged more than 11 per cent to one of its lowest points since 2020 as investors anticipated the coming legal battle. Since Twitter accepted Musk's acquisition offer, on April 25, its stock has lost over one-third of its value as investors have grown increasingly sceptical that the deal would get done on the agreed terms. (In contrast, the tech-heavy Nasdaq index was down about 12.5 per cent in the same period.)
Twitter declined to comment Monday. In a letter to Musk's lawyers on Sunday, the company's lawyers said that his move to terminate the deal was "invalid and wrongful" and that Musk "knowingly, intentionally, willfully and materially breached" his agreement to buy the firm. Twitter would continue to provide information to Musk and to work to close the transaction, the letter added.
Musk did not return requests for comment. On Sunday, the billionaire, who has cited the number of fake accounts on Twitter's platform as the reason that he cannot buy the company, tweeted a picture of himself laughing at the situation.
— Elon Musk (@elonmusk) July 11, 2022
Of all the wreckage Musk is leaving at Twitter, the most prominent may be how brutally he exposed the company's waning financial and business prospects. Twitter has operated at a loss for seven of the nine years it has been a public company. During deliberations over Musk's offer, the company received no serious interest from other suitors, people with knowledge of the situation have said. Twitter's board determined that Musk's offer of US$54.20 a share was the best it could obtain, suggesting it saw no way to reach that price on its own.
"The board's lack of conviction in the company's long-term future will linger over employees, partners and shareholders regardless of the outcome with Elon," Goldman said.
In recent months, Twitter's business has deteriorated. Parag Agrawal, Twitter's CEO, said in a memo to employees in May that the company had not lived up to its business and financial goals. To address the issues, he pushed out the heads of product and revenue, instituted a hiring slowdown and began an effort to attract new users and diversify into e-commerce. In April, the company stopped providing a forward-looking financial outlook to investors, pending the acquisition.
That trajectory is unlikely to change as uncertainty over the deal discomfits advertisers, the main source of Twitter's revenue.
"Twitter will have trouble in the near future reassuring skittish advertisers and their users that they're going to be stable," said Angelo Carusone, president of the watchdog group Media Matters for America.
In what was an implicit dig at Twitter's top executives, Musk said he could have done way better with the company. In a presentation to investors in May, he said he planned to quintuple the company's revenue to US$26.4 billion by 2028 and to reach 931 million users that same year, up from 217 million at the end of last year.
Musk emphasised Twitter's rudderless financial direction in a letter filed to the Securities and Exchange Commission on Friday. The company's "declining business prospects and financial outlook" had given him pause, his lawyers wrote, especially considering Twitter's recent "financial performance and revised outlook" on the fiscal year ahead.
Musk, who has more than 100 million followers on Twitter, has also jackhammered the product, saying it is not as attractive as other apps. He has repeatedly claimed, without evidence, that Twitter is overrun with more inauthentic accounts than it has disclosed; such accounts can be automated to pump out toxic or false content. (The company has said fewer than 5 per cent of the accounts on its platform are fake.)
His barbs about fake accounts have weakened trust in Twitter, just as the company prepares to moderate heated political discussions about an upcoming election in Brazil and the midterm elections this fall in the United States, misinformation experts said.
In another criticism of Twitter and the way it supervises content, Musk vowed to unwind the company's moderation policies in the name of free speech. In May, he said he would "reverse the permanent ban" of former President Donald Trump from Twitter, allowing Trump back on the social network. That riled up right-wing users, who have long accused the company of censoring them, and renewed questions about how Twitter should handle debates over the limits of free speech.
Inside the company, employee morale has been battered, leading to infighting and attrition, according to six current and former employees.
https://t.co/9WbPnnhlXU pic.twitter.com/0TyqYubHZZ
— ma.nu (@lmanul) July 11, 2022
Some of those who remain said they were relieved that Musk seemed to have decided against owning the company. Others shared nihilistic memes on the company's Slack or openly criticised Twitter's board and executives for entertaining Musk's offer in the first place, according to internal messages viewed by The New York Times. The mood among executives was one of grim determination, two people with knowledge of their thinking said.
Evan Williams, a founder of Twitter, tweeted on Friday that he wished for an end to Musk's antics.
"If I was still on the board, I'd be asking if we can just let this whole ugly episode blow over," Williams posted in response to the announcement that Twitter intended to sue Musk and force the deal forward. "Hopefully that's the plan and this is ceremony."
Manu Cornet, a Twitter employee, illustrated the mood with a cartoon that showed a shattered company that had been bumped off a shelf by Musk's careless elbow. His caption: "You break it, you buy it!"
This article originally appeared in The New York Times.
Written by: Kate Conger and Mike Isaac
© 2022 THE NEW YORK TIMES
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