Twitter Didn’t Seek a Sale. Now Elon Musk Doesn’t Want to Buy
The Tesla boss sets stage for what could become one of the oddest courtroom battles in corporate-takeover history
6 min
Elon Musk’s showdown with Twitter Inc. has set the stage for what could become one of the most unusual courtroom battles in corporate-takeover history—a spurned acquisition target that never sought to be bought potentially trying to force the buyer who soured on the deal to see it through.
In just over three months, Mr. Musk aggressively pursued a takeover that Twitter first resisted, then he prevailed and reneged—all the while using the very platform to ridicule Twitter and its leaders and drop hints about his shifting intentions.
With Mr. Musk’s attempt to terminate his US$44 billion takeover, Twitter says it plans legal action. In a statement Friday, it indicated it will file a lawsuit in the Delaware Court of Chancery arguing Mr. Musk must close the agreed-upon deal.
Friday evening, he filed papers saying he wanted out, taking aim at Twitter on several fronts and saying the company violated the merger agreement. He accused Twitter of withholding data from him to verify facts about the business and that its statements on the amount of spam on the platform represent material misstatements to regulators. He also argued the company was making critical changes to the ordinary running of the business without his consent, such as imposing a hiring freeze and layoffs.
Corporate-law experts say Twitter appears to be on sounder legal footing than Mr. Musk. The filing didn’t provide evidence to back up his assertion that the estimate was inaccurate or an alternate calculation. “This isn’t even in the ballpark,” said Zohar Goshen, professor of transactional law at Columbia Law School, adding that the impact on a company’s value needs to be so dramatic that its value would be halved, for example.
Layoffs and hiring freezes at tech companies in recent weeks also have become commonplace. Facebook parent Meta Platforms Inc. has cut back on hiring and Mr. Musk’s Tesla Inc. is trimming staff.
The question remains whether it is really possible to force the eccentric billionaire—known for eschewing norms even when it gets him in legal trouble—to buy a company he doesn’t want to own.
“What are they going to do if there is a judgment and he says, ‘Well, I’m still not going to buy it’?” said Mr. Goshen. “They don’t really have tools to force him to go through with it. You don’t put people in jail because they don’t buy something.”
There have been a few examples of buyers being forced to follow through with purchases under the “specific-performance” clause Mr. Musk agreed to, but most were small deals. Never has the concept of a court forcing a buyer to complete a deal been tested on such a large scale.
Most legal clashes over soured deals end in settlements involving a price cut or one-time payment. Mr. Musk agreed to pay a $1 billion reverse termination fee to Twitter if the deal falls apart, triggered under certain scenarios including if his debt financing falls through or regulators try to block the deal. Neither has occurred.
The clash pits multiple white-shoe law firms against each other. Twitter has recently retained Wachtell, Lipton, Rosen & Katz, people familiar with the matter said, while Mr. Musk is using Skadden, Arps, Slate, Meagher & Flom LLP. Twitter has already been working with Simpson Thacher & Bartlett LLP and Wilson Sonsini, while Mr. Musk’s team also includes lawyers at Quinn Emanuel Urquhart & Sullivan.
The agreement caps at $1 billion the amount Twitter could sue for damages, meaning its only options are to sue for specific performance to force him to follow through, or a maximum of $1 billion. A representative for Mr. Musk declined to comment.
The standoff leaves Twitter in a precarious position, given that its prospects as a stand-alone company are daunting in part because of a digital-advertising market in upheaval. Twitter shares closed at $36.81 Friday, 32% below the $54.20-a-share price Mr. Musk agreed to pay.
Facing broadsides from Mr. Musk and a softening ad market, Twitter CEO Parag Agrawal has been trying to prepare it for a difficult period ahead, whether under Mr. Musk’s ownership or not. In May, he announced a hiring freeze and belt tightening, saying he was taking action during the takeover because economic conditions had worsened and Twitter couldn’t assume the deal with Mr. Musk would close. This past week, he cut recruiting staff.
Investors appear unnerved by the latest twist, sending Twitter’s stock 4.81% lower in Friday after-hours trading following Mr. Musk’s disclosure.
Musk’s romp
Mr. Musk’s Twitter romp began with the unannounced purchase of US$22.8 million of Twitter shares on Jan. 31. He kept buying in February and March, building a roughly 9% stake for $2.6 billion and becoming the largest individual investor.
He took public jabs at Twitter, polling his followers on the site over whether it adheres to free-speech principles and publicly toying with the idea of starting a rival. By the time his stake became public on April 4, Mr. Musk had been secretly talking to Twitter for nine days.
He initially reached out to Jack Dorsey, the company’s co-founder and a friend of Mr. Musk’s, then spoke to director Egon Durban, co-CEO of private-equity firm Silver Lake, another acquaintance, according to a public filing on the deal.
The discussions began congenially, with Mr. Musk saying he might want to join the board. Then on Apr. 9, hours before taking the board seat Twitter had agreed to give him, he withdrew. Four days later, he made an unsolicited takeover offer at $54.20 a share and made the offer public the subsequent day.
Twitter initially seemed to turn up its nose but eventually relented—in part because directors concluded that no one else was likely to have the interest or ability to buy the company at the price Mr. Musk was offering. The billionaire agreed to waive detailed due diligence of Twitter’s business.
Even as the transaction was coming together, Mr. Musk was voicing concerns about a darkening economic and business outlook. In late March, Tesla had to temporarily shut its auto plant in Shanghai, the company’s largest, as China implemented pandemic restrictions, sending the stock steadily lower. And, on an April 20 earnings call, Mr. Musk talked about mounting inflationary pressures.
On May 13, Mr. Musk shocked many people involved in the deal with a predawn tweet saying the deal was “temporarily on hold.” He later added he remained committed to seeing it through. He cited questions about Twitter’s estimate that fewer than 5% of its monetizable daily average users are spam or fake accounts.
Fake accounts are certainly a concern for social-media companies. But Mr. Musk had long been aware of fake accounts on Twitter—he tweeted about it at least as far back as 2018—and Twitter’s estimate hadn’t changed in years. Mr. Musk said repeatedly that part of his goal as owner would be, as he put it in an April 21 tweet, to “defeat the spam bots or die trying!”
The May 13 bombshell kicked off weeks of public and private back and forth between Mr. Musk, Mr. Agrawal and lawyers and advisers for both sides, according to Friday’s filing. After Mr. Agrawal on May 16 tweeted an explanation of the company’s spam accounting, Mr. Musk responded with a poop emoji, then followed up with a question: “So how do advertisers know what they’re getting for their money? This is fundamental to the financial health of Twitter.”
Asked on Twitter on May 26 about the prospects of a recession, Mr. Musk said he expected one that could last 12 to 18 months. On May 24, Tesla shares hit their lowest point since June 2021, down nearly 50% from their all-time high in November. The fall had knocked more than $100 billion off Mr. Musk’s net worth, weakening a key asset he was using to help fund the Twitter deal.
As he was lining up financing, Mr. Musk sold $8.5 billion of Tesla stock over three days. Afterward, he said he planned to sell no further shares. He remains the auto maker’s largest investor, with a stake of around 16%, and planned to borrow against his stake. His original financing plan for Twitter included $12.5 billion from margin loans backed by Tesla stock he owns. But Tesla’s share price kept falling, effectively increasing the number of shares Mr. Musk would have to pledge as collateral.
About a month after the deal—with Tesla shares now down 37% from when Mr. Musk agreed to buy Twitter—Mr. Musk filed a revised funding plan that eliminated the margin loans. Instead, he pledged more equity financing. The funding details left questions about how Mr. Musk would come up with roughly $14 billion of his financing package that he still needed to secure himself or through outside investors.
Twitter’s troubles
On April 21, Twitter rival Snap Inc. had spooked investors with disappointing earnings and a stark warning of trouble in the digital ad market. Twitter, soon after, withdrew all previously provided goals and outlooks with its first quarter earnings, and didn’t provide any forward-looking guidance.
On May 12, Twitter’s Mr. Agrawal told staff the company was imposing a hiring freeze and cutting back on spending.
While some Twitter employees expressed optimism that Mr. Musk might reinvigorate the company, many were bewildered about their futures and upset at Mr. Musk’s incessant public hectoring, The Wall Street Journal has reported.
In the month after the deal was inked, executives held more than a dozen companywide or division-wide meetings to address employee questions. One senior Twitter executive, in a May internal note, called it a “chaos tax.”
When Mr. Musk on Friday said he was aiming to abandon the deal, a Twitter executive urged employees to refrain from commenting on the matter, citing planned legal action, according to a message viewed by the Journal. That message was shared with outsiders within an hour.
Mr. Musk on Saturday addressed attendees at the annual Allen & Co. gathering of media and tech leaders in Sun Valley, Idaho, mostly steering clear of Twitter. He focused his remarks on explaining how he forms his opinions and what goes into the conclusions he reaches.
At one point, he did ask his audience how many thought the number of fake accounts on Twitter was less than 5%, said an attendee, and people seemed hesitant to raise a hand.
—Joe Flint and Deepa Seetharaman contributed to this article.
Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Supplier Foxconn plans to build more factories and give India a production role once limited mostly to China
4 min
Apple and its suppliers aim to build more than 50 million iPhones in India annually within the next two to three years, with additional tens of millions of units planned after that, according to people involved.
If the plans are achieved, India would account for a quarter of global iPhone production and take further share toward the end of the decade. China will remain the largest iPhone producer.
Apple has gradually boosted its reliance on India in recent years despite challenges including rickety infrastructure and restrictive labor rules that often make doing business harder than in China. Among other issues, labor unions retain clout even in business-friendly states and are pushing back on an effort by companies to get permission for 12-hour work days, which Apple suppliers find helpful during crunch periods.
Apple and its suppliers, led by Taiwan-based Foxconn Technology Group, generally believe the initial push into India has gone well and are laying the groundwork for a bigger expansion, say people involved in the supply chain.
Apple is emblematic of a move among companies worried about over dependence on China to move parts of their supply chains elsewhere, most often to Southeast Asia and South Asia. Diplomatic efforts by the U.S. and its allies to block Beijing’s access to advanced technology and strengthen ties with New Delhi have accelerated the trend.
The first phase of a Foxconn plant under construction in the southern state of Karnataka is expected to start operating in April, and the plant aims to make 20 million mobile handsets annually, mainly iPhones, within the next two to three years, said people with direct knowledge of the construction plans.
A further iPhone-producing mega plant is on Foxconn’s drawing board with capacity similar to the one in Karnataka, although the plans are still in a nascent stage, the people said.
Apple has also chosen India as its site for a manufacturing stage for lower-end iPhones to be sold in 2025. In this stage, known as new product introduction, Apple’s teams work with contractors in translating product blueprints and prototypes into a detailed manufacturing plan. Until now, that work was done only in China.
Combined with plans for expanded production at an existing Foxconn plant near Chennai and at another existing plant recently bought by Indian conglomerate Tata, these developments signify that Apple intends to have the capacity to make at least 50 million to 60 million iPhones in India annually within two to three years, said people involved in the planning.
Annual capacity could grow by tens of millions of units after that.
Foxconn indicated its commitment to India by announcing on Nov. 27 that it was investing the equivalent of more than $1.5 billion in the country, money that people familiar with the matter said would include production for Apple. The announcement didn’t mention the iPhone or name specific locations.
Global iPhone shipments last year totalled more than 220 million, according to research firm Counterpoint, a number that has remained steady in recent years. Because almost all iPhones are made in either China or India, China will continue to account for well over half of iPhone output.
Apple has faced challenges in China this year beyond trade tensions with the U.S., including the Chinese government instructing some officials not to use iPhones at work.
“India’s trust factor is very high,” said Ashwini Vaishnaw, India’s information technology minister.
This year, for the first time, India-made iPhones were introduced on the first day of global sales of the latest model, eliminating the lag with China-made phones.
Supply-chain executives say hourly wages are now significantly lower in India than in China, but other costs such as transport remain higher, and labor unions sometimes resist rule changes sought by manufacturers.
In May, the chief minister of Tamil Nadu state, where Foxconn’s flagship Chennai plant is located, said he would withdraw regulations allowing a 12-hour workday, weeks after the state passed an amendment authorising the longer hours. The chief minister, M.K. Stalin, attributed the decision to opposition from labor activists.
Karnataka state has stood by a decision earlier this year to extend the workday to 12 hours, up from a previous limit of nine hours, though companies must seek approval to do so. A state labor official, G. Manjunath, said new rules also allow companies to employ women on overnight shifts without seeking government approval.
After years of battling local-content rules and other red tape, Apple this year opened its first retail stores in India. Abhilash Kumar, an India-based analyst at TechInsights, said the top-of-the-line iPhone 15 Pro Max was selling well in the country, though it costs about $700 more than in the U.S.
Apple is also making progress in India toward building a network of core suppliers, long a strength of Chinese manufacturing. Officials said this week that Japanese battery maker TDK would build a new factory in India’s Haryana state to manufacture battery cells to power Indian-made iPhones. A TDK spokesman declined to comment.
The moves don’t mean Apple and its suppliers are leaving China. Apple Chief Executive Tim Cook has traveled to China twice this year, stressing the country’s importance as a production hub and consumer market. He visited Luxshare, a China-based assembler that is taking a bigger role in the China portion of iPhone assembly.
On social media, Apple has assured Chinese consumers that iPhones selling in authorised channels are made in China. At an industry event in Beijing that Chinese premier Li Qiang attended in late November, Apple’s booth stressed the company’s business with Chinese suppliers.
Foxconn Chairman Young Liu said in November that China would continue to account for the largest share of Foxconn’s capital investment next year.
Liu has visited India at least three times in the past year and a half, meeting Prime Minister Narendra Modi and other officials. People involved in the planning said Modi’s home state of Gujarat in the west was one possible site of a future Foxconn plant. Meanwhile, the company has other projects in the works in the southern half of the country for electronic components and a plant likely to focus on making AirPods for Apple.
The plant in Karnataka state is under construction on 300 acres of land near the airport in Bengaluru, a southern city that is considered India’s tech hub. Officials involved in the planning said Foxconn has secured approval to invest nearly $1 billion in the plant and is seeking the go-ahead to put in an additional $600 million or so.
Combined with other projects, Foxconn’s investments in the state are likely to reach around $2.7 billion, they said.
Some iPhones are also made at a plant near Bengaluru that India’s Tata Electronics agreed in October to buy from Taiwan’s Wistron. Tata Group is the first local company to take on manufacturing iPhones.
“Apple has created an additional spoke in its India strategy by roping in the country’s largest business group—Tata—to be a part of its manufacturing system in addition to Foxconn,” said India’s junior information-technology minister, Rajeev Chandrasekhar.
—Shan Li in New Delhi and Selina Cheng in Hong Kong contributed to this article.
Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
