Elon Musk stands to be the biggest loser in his Twitter deal
- Elon Musk stands to be the biggest loser in the battle over the future of Twitter.
- Twitter employees and banks financing the deal are also in a "less than ideal" position, experts said.
With a resolution in sight, Elon Musk's battle with Twitter has left one clear loser — the richest man in the world.
But experts say the bankers, lawyers, and employees who have been sucked into Musk's orbit may also pay a price for the months-long legal battle.
Wedbush tech analyst Dan Ives compared Musk's purchase to trading "caviar to buy a $2 slice of pizza." It's a poor trade for the billionaire, as well as for the over a dozen investors who have offered to back the $44 billion purchase.
Meanwhile, for Twitter the business, it's a clear win against a man who has been loath to back down in the past, as well as a coup for shareholders who stand to gain if Musk makes good on his offer. Inside the company, however, Musk's potential takeover is already frustrating employees and sparking fears over future layoffs.
Here's who could get hurt in the battle for Twitter's future — and who stands to benefit:
Musk's U-turn on the Twitter purchase is not only a rare instance of the billionaire accepting defeat, but it has put him in an even worse situation when it comes to financing the deal.
The Tesla CEO has repeatedly disparaged and helped lower the stock price of the company he plans to purchase. Since Musk's initial acquisition offer, Twitter's stock has slid as much as 26%. Though shares of the social media company surged 22% after the billionaire once again said he plans to buy it, observers argue that Musk is overpaying, especially compared to Twitter's main rivals: by paying $54.20 per share, Musk will pay more than double the current valuation of Meta and Snap, Barron's points out.
Musk's wealth, the majority of which is tied to Tesla's share price, has also plunged in the months since. When he agreed to buy Twitter in April, he was worth $257 billion, according to Bloomberg's Billionaires Index. Since Twitter's board accepted Musk's offer on April 25, Tesla has dropped 28%. Now, Musk is worth around $30 billion less on paper than before reaching the initial deal agreement.
Musk's actions have also appeared to have a detrimental effect on Twitter's operations, Stifel analysts Mark Kelley and Thomes Doheny said.
"We believe the company he may soon own is considerably less attractive at this point, with a steady drum beat of departures across the ranks and a product that has been in limbo since April when the deal was originally announced," Kelley and Doheny wrote in a note published Tuesday.
Aside from Musk, those financing the deal have the most to lose.
The parties — which include Morgan Stanley and Bank of America, to name a few — will be faced with financing the deal after months of subpoenas and back and forth between Twitter and Musk.
"From the banks' perspective, this is less than ideal," Ives told Reuters. "The banks have their backs to the wall — they have no choice but to finance the deal."
To make matters more challenging, the deal is now moving forward at a much less favorable time for banks, who are growing increasingly concerned about rising interest rates and the possibility of a recession. Reuters reported that the banks involved in the deal could face potential losses of "hundreds of millions" as they try to sell to investors who are growing wary of taking on riskier debt.
The court battle also forced investors, including Oracle founder Larry Ellison and Morgan Stanley CEO James Gorman, to air their dirty laundry after the men were subpoenaed and texts between investors and Musk were publicly shared as a part of the pretrial discovery process.
Gerard Filitti, senior counsel at The Lawfare Project, an international non-profit legal think tank and litigation fund based in New York City, told Insider Musk might even have been incentivized to close the deal by the damage his impending deposition could have on some of his closest relationships in the corporate world.
And for Twitter employees, the entire saga is "devastating," Harry Kraemer, a professor of management and strategy at Northwestern University's Kellogg School of Management, previously told Insider.
"An organization is its people," Kraemer said. "Your people, instead of working, are spending most of their time trying to figure out, who owns the company? And what's going to happen to my job? What's going to happen to my family? How do you plan for what your new products or development is going to be over the next year when you don't know what's going to happen next week? Planning kind of comes to a halt."
In fact, the news that Musk had re-upped his offer to buy the company also came as Twitter employees were sitting in 2023 strategy meetings, meetings some employees fear could be rendered pointless under new ownership. One employee, senior financial analyst Parker Lyons, tweeted a meme to that effect, implying that the company's 2023 plans were now "worthless."
Insider's Kali Hays previously reported that hundreds of Twitter employees have fled the company since June, in large part over concerns related to Musk's leadership.
Twitter has paused hiring and initiated layoffs since Musk agreed to buy the company. In the lawsuit, the company attributes its actions to pressure from Musk to cut costs, and there may be further layoffs looming: during an all-hands meeting with Twitter employees in June, Musk alluded to more cost-cutting, saying that the company "needs to get healthy."
Derek Horstmeyer, a finance professor at George Mason University, told Insider by email that Twitter employees might have "a rough go of it" if Musk takes over.
"I expect lots of people quitting given the changes Elon wants to make," Horstmeyer said.
Twitter is one of few companies to emerge victorious in a battle against Musk, but its victory hasn't come without some drawbacks.
Filitti told Insider Twitter is getting exactly what it wants, while avoiding the "bad blood and exorbitant cost of the litigation [which] would significantly damage the company and all involved."
Though, Paul Regan, Associate Professor and Associate Director of the Institute of Delaware Corporate & Business Law at Widener University Delaware Law School, noted that overall the company will still have to recover from the uncertainty of the trial.
It also faces a future with Musk as a reluctant buyer.
Twitter's shareholders stand to gain the most from this saga, particularly those who bought during the downturn.
Carl Icahn, for example, could see a major profit from the deal, The Wall Street Journal reported. The billionaire investor and chairman of Icahn Enterprises poured roughly $500 million into Twitter over the past few months, buying up shares at a discount after Musk tried to back out of the deal. As a result, he stands to see at least a $250 million gain, according to the Journal.
Florida-based hedge fund Pentwater Capital also stands to gain after it became one of Twitter's largest shareholders in a second quarter. Now, Pentwater stands to make more than $200 million if the sale goes forward, CNBC reported.
Sources told The Journal that other big-name investors, including Third Point and D.E. Shaw Group, have also invested in Twitter as this ordeal played out and could be set up to see significant gains.
"Twitter shareholders are the real winners," Horstmeyer said. "He is overpaying by anywhere from 50% to 75% for this company."
Twitter CEO Parag Agrawal
Throughout the battle, Twitter CEO Parag Agrawal has come across as highly professional — even after a trove of private text messages from his conversations with Musk were released.
Last month, hundreds of text messages between Musk and some of the most powerful people in Silicon Valley were released as a part of the pretrial discovery process for the lawsuit. In the texts, Agrawal was one of few men who approached Musk without pandering or reacting negatively to the insults the billionaire levied against him.
The Twitter CEO continually refused to bend the knee to Musk, despite the billionaire's attempts to abandon the deal.
In April, Agrawal took Musk to task for publicly questioning the viability of the company.
"You are free to tweet 'Is Twitter dying?' or anything else about Twitter," Agrawal texted Musk. "But it's my responsibility to tell you that it's not helping me make Twitter better in the current context."
It's likely he may lose his role as CEO if Musk goes through with the purchase.
But if he does, Agrawal will leave looking better in the public eye than he did going into the court battle.
Both Twitter and Musk employed over 50 lawyers from several top law firms in the court battle.
While the lawyers are potentially losing out on millions and the opportunity to spar at trial, experts told Insider Musk could still shell out as much as $200 million for legal costs for himself and Twitter after the lawyers spent months filing nearly a thousand court letters and hundreds of subpoenas.
Litigators, merger and acquisition lawyers, and senior partners at such notable firms can make up to $2,500 an hour, according to Anat Alon-Beck, a business law professor at Case Western Reserve University. She put the estimate for Musk's costs for just lawyers at around $30 million. Transperfect CEO Phil Shawe, who has litigated cases for his company in Delaware Court of Chancery, said Musk could easily be shelling out $7 million to $10 million per month in legal fees and potentially even more in the months closer to the trial.
"The big, big winners in this one are gonna be the law firms," Kraemer said. "These guys are gonna make a fortune."
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