The Musk-Twitter deal completes, but the saga continues​

By Jake Rickman
Image credit - KLYONA / Shutterstock.com​

What do you need to know this week?

Last Friday, 27 October, Elon Musk’s takeover of Twitter was completed and he took possession of the shares in the company. While this marks the end of one (needlessly long) chapter, just because the transaction closed does not mean this is the last we will hear of Musk and Twitter.

Since Friday, a flurry of activity has emerged including:
  • the top three executives including Twitter’s now-former CEO were dismissed;
  • the New York Times alleges that Musk has dismissed various employees including the previous executives “for cause” in an effort to avoid paying them their severance packages (though Musk denies this);
  • Musk announced his intentions to overhaul the current “blue tick” system that high-profile tweeters and certain officials; and
  • Musk dissolved the board of directors, making him the company’s sole director.
As the board’s dissolution makes clear, given he is now the sole owner of Twitter, Musk certainly has the legal power to do whatever he wants with his company. But Musk may very soon have to grapple with the fact that being Twitter’s sole owner does not give him absolute power.

Why is this important for your interviews?

When discussing Elon Musk, though sometimes good for conversation fodder, it tends to be quite difficult to parse the antics from the substance. That said, it is still a useful exercise in trying to determine what — if any — business case there is for the ongoing developments.

It is still unclear what exactly the purpose behind the acquisition was. From a financial perspective, Twitter remains unprofitable as of June 2022 and its revenue has been falling over previous quarters. More generally, the tech sector has seen a considerable devaluation throughout 2022 as revenue from advertisements slows and investors baulk at the diminishing growth prospects facing the largest tech firms. This is to say, the financial case for the purchase remains uncertain.

Before the transaction’s consummation, Musk said he was planning on slashing up to 75% of Twitter’s staff. While this would certainly go a long way to easing expenses and thereby considerably expand Twitter’s potential profit margin, putting aside the ethical questions raised by the move, would the company continue to function with such a dramatic loss of its talent?

Judging by Musk’s most recent U-turn where he since told employees he would not be sacking three-quarters of them, perhaps he concluded the move was not the most prudent.

What is likely true is that he will need to devise ways to generate additional revenue streams to offset the declining rates of ad revenue, which has long been the source of Twitter’s primary income. This is doubly true if he pushes ahead with his expected plans to reform what he derides as platform “censorship” but which users and advertisers — as well as the EU — consider sensible moderation policies. This is because advertisers are likely to walk away from the platform in protest to what some fear may become a haven for extremist views.

How is this topic relevant to law firms?

Skadden advised Musk and the associated entities used to acquire Twitter, but it remains to be seen which firm(s) Musk will instruct if (more accurately, when) he faces various future legal and commercial challenges.