A tweet-by-tweet negotiation
Elon Musk, as ever keeping Twitter’s deal advisers on their toes, threw his latest jab today, tweeting “the deal cannot move forward” until Twitter’s C.E.O. shows “proof” that bots only make up less than 5 percent of its users. The tweet followed remarks at a conference in Miami indicating that he may be trying to lay the groundwork to renegotiate the deal.
Twitter’s shares fell 8 percent yesterday to close at $37.39. That was far below the $54.20 a share that Musk agreed to pay last month to buy the social media company.
Musk implies the bots give him an out. At the conference, which was closed to journalists, Musk was asked yesterday about Twitter’s spam accounts, which had been a focus of his tweets over the weekend about the deal. It’s a “material adverse misstatement” if Twitter says it has less than 5 percent of fake or spam accounts, but the figure is actually significantly more, Musk said. His wording was likely purposeful: “Material Adverse Change” clauses are used by buyers to get out of or renegotiate deals if there has been serious harm to a business. But lawyers say they doubt Twitter’s bot count would qualify as a MAC trigger, for which courts have generally set a high bar. (On Monday, Parag Agrawal, Twitter’s chief executive, posted a lengthy thread detailing how the company calculates its number of bots.)
Twitter contends it has the law and a signed contract on its side. Per the terms of the deal, Twitter can sue Musk to close or pay for the deal as long as the debt financing is in order. According to a Twitter S.E.C. filing today, Musk fast-tracked deal diligence of his own volition. But Musk does not always act in a way that implies he is fearful of legal consequences. And regardless of Twitter’s potential legal rights, Musk is creating havoc for Twitter employees and directors, while also driving down Twitter’s stock price. (We are still awaiting whether the S.E.C. will take action on these tweets and comments.) If Musk’s angle is to get a lower price, Twitter’s board could simply offer him one, though there is no guarantee that it will actually contain him. On the flip side, Twitter could take Musk to court (one could make the case he has violated the nondisparagement clause of the deal). But, since the board wants to close the deal, would that actually help their cause?
Jack Dorsey, Twitter’s founder, seemed to play a role in making the deal happen. The S.E.C. materials filed this morning revealed the interesting turn of events that preceded Musk’s bid to take Twitter private.
March 27: Musk first told the board about his stake in Twitter, and said he was considering three things: joining Twitter’s board, taking it private or starting a competitor. Twitter later invited Musk to join his board.
April 5: Musk had a conversation with his friend Jack Dorsey, in which Dorsey said he thought Twitter would be better off as a private company.
April 9: Musk told Twitter he actually did not want to join the board, and instead wanted to take it private.
What does this all mean? As of now, the deal is still on, at the original offer price, despite what Musk has tweeted. (In fact, he may be looking to raise more money to finance his bid by selling SpaceX shares.) Musk may well keep tweeting about bots because “otherwise, he’s got no card to play,” said Ele Klein, co-chairman of the global shareholder activism group at the law firm Schulte Roth & Zabel. “It then becomes a question of, if you’re the company, even though you have a really great fact pattern, how long do you want to spend fighting,” Klein said. “Life’s too short to fight with Elon Musk.”
HERE’S WHAT’S HAPPENING
The Supreme Court rules in favor of Senator Ted Cruz in his campaign finance case. The ruling was the latest in a series of decisions dismantling various aspects of campaign finance regulations on First Amendment grounds. The Texas Republican had challenged a federal law that put a $250,000 cap on repayments of candidates’ loans to their campaigns using postelection contributions.
Hedge funds are facing big losses this year. Tiger Global, a hedge fund known for big bets on tech start-ups, reported in a regulatory filing yesterday that its assets had tumbled by $20 billion in the first three months of the year, or about half the value of the fund. Bill Ackman’s Pershing Square is also among 2022’s hedge fund losers, down nearly 20 percent for the year through the first week of May.
The F.D.A. and Abbott reach an agreement to ease the baby formula shortage. Abbott will restart production in about two weeks and will review progress on a plant in Sturgis, Mich., which has been shut since February after several babies who had consumed formula that had been produced there became ill and two died.
Starbucks will cover travel expenses for employees seeking abortions. In a memo yesterday, the company said that it wanted to ensure employees had “access to quality health care.” Starbucks is one of a few high profile companies, including Yelp, Citigroup and Tesla, that have announced plans to cover transportation costs.
Wall Street resets expectations
Recently, predictions of a looming slowdown have seemed to be growing faster than the actual economy, which is by all measures still pretty hot. Goldman Sachs’s top economist, Jan Hatzius, over the weekend became the latest Wall Streeter to lower his expectations for the U.S. economy, cutting his G.D.P. forecast by a total of $200 billion for this year and next.
Layoffs are rising. A number of industries, particularly those that are affected by higher rates, seem vulnerable to job cuts, reports The Times’s Lydia DePillis. Layoffs rose by 6 percent in April versus the same month in 2021, according to the outplacement firm Challenger, Gray and Christmas. And April was the first month this year to have a year-over-year increase in layoffs. In addition, the drop in tech stocks has also caused venture capital firms to pull back on funding start-ups, leading to layoffs in tech as well. “We’ve seen several of our clients in the high-growth technology space quickly shift their focus to reducing cost,” said Bryce Maddock, the chief executive of the outsourcing company TaskUs, discussing U.S. layoffs on an earnings call last week.
Many, though, still think the country can avoid a recession. Goldman says the housing market in general is less likely than it was back in 2008 to drop because of a lack of supply of available houses. Nor does the firm expect a jump in unemployment. And some are guessing that given how hard it has been to find workers, employers will be slower to let them go than usual.
Seen and heard
“I sincerely ask all our partners to join us in increasing their financial support to Ukraine.” — Treasury Secretary Janet Yellen, in a speech today at the Brussels Economic Forum, warned that Ukraine did not have enough funding to sustain its government and fend off Russia.
“The virus is going to keep evolving. And there are probably going to be a lot of people getting many, many reinfections throughout their lives.” — Juliet Pulliam, an epidemiologist at Stellenbosch University in South Africa, on how scientists have found that people can be infected with the coronavirus repeatedly, sometimes within months.
How Elon Musk’s Twitter Deal Unfolded
A blockbuster deal. Elon Musk, the world’s wealthiest man, capped what seemed an improbable attempt by the famously mercurial billionaire to buy Twitter for roughly $44 billion. Here’s how the deal unfolded:
The initial offer. Mr. Musk made an unsolicited bid worth more than $40 billion for the influential social network, saying that he wanted to make Twitter a private company and that he wanted people to be able to speak more freely on the service.
The response. Twitter’s board countered Mr. Musk’s offer with a defense mechanism known as a “poison pill.” This well-worn corporate tactic makes a company less palatable to a potential acquirer by making it more expensive for them to buy shares above a certain threshold.
Securing financing. Though his original offer had scant details and was received skeptically by Wall Street, Mr. Musk has been moving swiftly to secure commitments worth $46.5 billion to finance his bid, putting pressure on Twitter’s board to take his advances seriously.
Striking a deal. With the financing in place, Twitter’s board met with Mr. Musk to discuss his offer. The two sides soon reached a deal, with the social media company agreeing to sell itself for $54.20 a share.
Will the deal go through? For the purchase to be completed, shareholders have to vote and regulators have to review the offer first. Scrutiny is likely to be intense and questions remain about Mr. Musk’s plans for the company, especially after he suggested the deal might be “temporarily on hold” as he gathered information about the volume of spam and fake accounts on Twitter. (He later said he was “still committed” to the acquisition.)
“We need the flexibility of being able to be in a different space than we could have afforded right in the middle of the pandemic.” — Melissa Pancoast, who moved her financial literacy start-up The Beans into a WeWork office. After the pandemic turned co-working spaces into ghost towns, companies are now lining up for them.
Crypto cops seek more crash cushion
For some experienced cryptocurrency investors, last week’s crash was par for the course. “Markets are seasonal; crypto is no exception,” the venture capital firm Andreessen Horowitz wrote philosophically in a new “state of crypto” report out this morning. “Summers give way to the chill of winter, and winter thaws in the heat of summer.”
But for officials in Washington contemplating new rules for a slew of novel financial products, taking the nosedive in stride is tough. Many are calling for quick action, though that may end up being the only thing they agree upon easily.
Securities and Exchange Commission chairman Gary Gensler, speaking at an annual conference of Wall Street regulators in Washington yesterday, said crypto was “a highly speculative asset class” that left investors exposed to losses and fraud.
The Commodity Futures Trading Commission chairman, Rostin Behnam, told CNBC that crypto is “causing some confusion and some chaos,” and said that his agency should take on more regulatory responsibility over digital assets.
The Consumer Financial Protection Bureau chairman, Rohit Chopra, told Bloomberg that he thought there were many dangers for investors lurking in stablecoins — cryptos linked to assets like the dollar that are meant to hold a steady value, but some of which have not been doing so lately.
What regulated crypto markets could eventually look like is anyone’s bet. The S.E.C. has proposed bringing exchanges and other firms that facilitate crypto trading under the same regulations that now govern stock markets. Gensler also argues that most tokens should be registered as securities, which would mean disclosures for investors. Some lawmakers have also favored more reporting for crypto brokers for tax compliance. In addition, Stablecoins, backed by traditional assets like cash and U.S. Treasuries, could be regulated like banks. But that would still leave some products outside regulators’ purview. “The existing oversight is clearly inadequate,” said Salman Banaei, policy chief at the crypto company Uniswap Labs, who was formerly at the C.F.T.C. On that, at least, there is wide accord.
THE SPEED READ
Warren Buffett’s Berkshire Hathaway buys a $3 billion stake in Citigroup and exits Wells Fargo. (FT)
SMBC Aviation Capital will become one of the world’s largest aircraft lessors with a $6.7 billion acquisition of rival Goshawk Aviation. (Reuters)
The $3.1 billion sale of Chelsea F.C. is at risk of collapse as talks stall. (Guardian)
Some North Koreans are trying to get remote working I.T. jobs by pretending they’re from other parts of Asia, the F.B.I., State Department and Treasury warned. (BBC)
A state judge struck down a California law that mandated having women on company boards. (WSJ)
“What Do Most Mass Shooters Have in Common? They Bought Their Guns Legally.” (NYT)
Portugal’s finance minister said the country plans to introduce taxation on cryptocurrencies. (Coindesk)
Best of the rest
The art holdings from one of Manhattan’s most acrimonious billionaire divorces were sold at auction for a record $922 million. (NYT)
Former President Donald Trump could be paid to post for his own start-up company, a securities filing reveals. (NYT)
JP Morgan C.E.O. Jamie Dimon should ride the subway to work, New York’s mayor Eric Adams said in an interview. (FT)
A donation from Snapchat C.E.O. Evan Spiegel and his wife, Miranda Kerr, paid off the student debt for all new graduates of Otis College of Art and Design in Los Angeles. (LA Times)
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