New filing outlines litany of risk related to its ongoing acquisition by Elon Musk.
The ongoing saga of Elon Musk’s attempt to buy social media platform Twitter has added another chapter.
Musk, the capricious chief executive of electric car company Tesla (TSLA) – Get Tesla Inc Report, has spent weeks courting, trolling, doubling back and playing hard to get with the company.
Finally he offered $44 billion for it lock, stock and barrel — and Twitter accepted that deal, with some contingencies.
Musk can’t disparage Twitter (TWTR) – Get Twitter, Inc. Report and he had to outline his plans to finance the deal.
The result thus far has been a sketch of one of history’s largest leveraged buyouts, involving three holding companies, a staking of Tesla shares as collateral and an inventive reverse merger to transfer the company to Musk.
It has also resulted in a collective freakout among Twitter employees — and a daily game among the world’s business press, as each outlet tries to guess what the new angle in this story will be.
Or they just follow Musk’s never ending tweets, which have already violated terms of the deal and lead to speculation that Musk doesn’t actually want to buy Twitter in the first place.
Now, however, we have the first tangible signs that both company’s are worried about Musk’s volatile behavior and how it might affect the bottom line.
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Advertisers Are Warned
A new document filed by Twitter with the Securities and Exchange Commission shows the company warning that uncertainty surround Musk could cost it staff and advertisers.
The 10-Q, which you can read in its entirety here, was filed for the quarterly period ending March 31.
In it, Twitter lists a litany of concerns related to Musk on its risk factor page.
“During the period prior to the closing of the merger, our business is exposed to certain inherent risks and certain restrictions on our business under the terms of the Merger Agreement that could harm our business relationships, financial condition, operating results, cash flows, and business,” the filing states.
“Including:
• potential uncertainty regarding our future plans and strategy, including business model changes and transformation;
• whether advertisers continue their spending on our platform;
• our inability to attract and retain people on Twitter and increase their level of engagement, including ad engagement, and its impact on revenue;
• our inability to develop or acquire new products, product features and services, improve our existing products and services, including with respect to Promoted Products, video and performance advertising, or increase or maintain the value of our products and services;
• the possibility of disruption to our business and operations resulting from the announcement and pendency of the merger, including diversion of management attention and resources;
• our inability to attract and retain key personnel and recruit prospective employees, and the possibility that our current employees could be distracted, and their productivity decline as a result, due to uncertainty regarding the merger;
• the inability to pursue alternative business opportunities or make changes to our business pending the completion of the merger, and other restrictions on our ability to conduct our business;
• our inability to freely issue securities, incur indebtedness (subject to certain exceptions), or declare or authorize any dividend or distribution without Parent’s approval;
• our inability to solicit other acquisition proposals during the pendency of the merger;
• the amount of the costs, fees, expenses and charges related to the Merger Agreement and the merger, which may materially and adversely affect our financial condition and cash flows;
• negative impacts arising from global and domestic economic and geopolitical trends and events, including the conflict in Ukraine and the COVID-19 pandemic; and
• other developments beyond our control that may affect the timing or success of the merger.”
Is a Lawsuit in the Offing?
Twitter also warns repeatedly of risks related to possible litigation related to the merger with Musk and the hazards of doing a deal that closes on time and within terms.
“Regardless of the outcome of any future litigation related to the merger, such litigation may be time-consuming and expensive and may distract our management from running the day-to-day operations of our business,” the company states.
“The litigation costs and diversion of management’s attention and resources to address the claims and counterclaims in any litigation related to the merger may materially adversely affect our business, results of operations, prospects, cash flows, and financial condition.”
Twitter then points out that if the deal falls through for any reason, it could face a lawsuit or multiple lawsuits that could be related to the failed merger.
That would reflect unfavorably on the company, which would have to explain to shareholders why they have experienced a lost in share value, seen less talent recruited and scared off advertisers.
“Any litigation related to the merger may result in negative publicity or an unfavorable impression of us, which could adversely affect the price of our common stock, impair our ability to recruit or retain employees, damage our relationships with our advertisers and other business partners, or otherwise materially harm our operations and financial performance,” Twitter state.
