Elon Musk can tweet anything he likes, because he’s Elon Musk, and he’s buying Twitter, and free speech is awesome. What he can’t do is make false tweets true.
Musk said Friday that the Twitter deal was temporarily on hold while he looked into a report that spam bots and other fake accounts made up less than 5% of its users. He added, hours after his first tweet, that he was “still committed to [the] acquisition.” Investors promptly sold off shares of Twitter, thinking that Musk’s words somehow had meaning, embodied intent or otherwise had an impact on the world. They did not, eppur si muove, and yet the stock market moved.
So let’s answer a few questions you might have.
Can Musk put the Twitter deal on hold?
No. First, “on hold” has no meaning here. The deal must be consummated by Oct. 24, according to his agreement with the company. Between now and that date, Musk can say the deal is “on hold” or “steaming ahead” or “just scrumptious.” None of those statements would have any meaning. Under the agreement, it’s binary: Either he does the deal or he doesn’t.
Can Musk say things like this without getting in trouble with the SEC or Twitter?
He most likely won’t face trouble from either. Musk is perfectly in his rights to seek information from Twitter: That’s a normal part of any deal. What’s not normal is announcing to the world that he’s doing it.
The SEC has gone after Musk for tweeting about his companies before, but those involved specific claims about having funding secured to take Tesla private or sharing misleading details about car deliveries.
In 2013, the SEC clarified that Regulation FD, its rules for disclosures to investors, could apply to social media, provided that companies advised investors where they should look. Musk’s agreement with Twitter and his other filings specifically mention he might tweet about the deal, which seems like reasonable notice to investors that they should follow his Twitter account.
Twitter might be able to argue that declaring the deal “on hold” constituted a violation of the merger agreement. Section 6.8, Public Announcements, holds that both parties must consult with each other before making statements about the deal. However, it allows for Twitter and Musk to discuss a “dispute between the parties.”
It also offers Musk a big carve-out to tweet as he likes: “Notwithstanding the foregoing, the Equity Investor shall be permitted to issue Tweets about the Merger or the transactions contemplated hereby so long as such Tweets do not disparage the Company or any of its Representatives.”
Twitter did not respond to a request for comment on Musk’s statements.
Did Musk disparage Twitter?
Kind of, in implying that Twitter’s regulatory filing about spam bots might have been false or misleading. But he only asked to see the “details supporting [the] calculation” that bots comprise less than 5% of Twitter’s users.
It would be a big deal if Twitter’s filing were indeed false. Besides potentially violating terms of its agreement with Musk, Twitter could face sanctions from the SEC and lawsuits by investors.
That said, Musk has actively attacked two company lawyers, Vijaya Gadde and Jim Baker, sending waves of trolls after them. Twitter hasn’t offered any public support for its executives or commented on whether it considered that a violation.
Is Musk trying to get out of the deal?
As we noted, he said Friday that he’s still “committed” to the deal. He’d have to pay Twitter $1 billion if he broke things off, and Twitter could also pursue a term called “specific performance,” basically compelling Musk to go through with the deal. Musk is also reportedly seeking more equity funding to lessen the amount he’ll have to borrow against his Tesla stake, which doesn’t seem like something he’d do if he were trying to weasel his way out.
There are very limited circumstances in which Musk can cancel the deal and have Twitter instead pay him a $1 billion breakup fee, and those mostly center around the possibility of a superior bid. With the stock market melting down, Twitter’s board is looking smart every day for taking Musk’s $54.20 per share offer; it has little incentive to bust up the deal.
Is Musk going to get in trouble for this tweet?
The parties that might take action are Twitter investors, particularly those who sold their shares on the basis of his “on hold” statement. If the stock rebounds, they might argue that Musk caused them to take a loss based on misleading information.
The problem with that is that Musk could argue, as he did in his 2019 “pedo guy” defamation trial, that he’s just an “idiot,” and that any sensible investor would understand that he was bound by his agreement with Twitter and couldn’t actually put the deal on hold. It’s kind of like when he asked Twitter users to vote on whether he should sell some of his Tesla stake when he had actually planned the sale months before. You can’t ignore what Musk says, but you don’t have to believe it either.