What happens next at Twitter if Musk walks away?

As the social media giant’s erratic suitor decides whether to follow through on his $44bn bid or back out, the Tweeps don’t know if they’re coming or going

Twitter is stuck in no man’s land - and Musk will, no doubt, keep it there, one tweet at a time. Picture: Supplied

Picture the scene: Elon Musk rises early at the tiny prefab where he lives in Boca Chica, Texas, not far from the launch pad of SpaceX. He grabs his phone and starts typing furiously. “I changed my mind,” he tweets. “Twitter is a basketcase - I will not buy this company.”

The message, sent on July 4 2022, when US markets are closed for America’s Independence Day celebrations, is followed by another, this one punctuated with a fireworks emoji. Musk can’t help himself: “I guess this is my Independence Day - from Twitter.”

The Tesla tycoon then instructs his team of high-priced lawyers at Skadden, Arps to go to war with Twitter’s directors. For weeks, the social media company’s board, led by chairman Bret Taylor, has fought to hold Musk to his commitment to buy the company, despite a tanking share price and Musk’s (unfounded) questions over the number of fake accounts among the platform’s users.

He had, after all, signed a contract that was as close to iron-clad as one can get. He had waived his rights to due diligence, agreed to pay a healthy $54.20 a share, and also to pay $1 billion in cash if he walked away without cause. For Twitter, the stakes rose as its share price fell. Since the deal was announced in April, its stock has plunged by a quarter. If Musk walked, it was anyone’s guess how much further it might fall. Amid the wider tech stock market crash, certainly no one else would pay anywhere close to what he had offered. Workers whose shares were suddenly worth far less would flee in their droves. It would be a disaster.

Lost amid the hullabaloo: Twitter itself. The $30 billion company employs more than 7,500 workers. Picture: AFP

Musk decides, however, that he would rather spend tens of millions on a team of lawyers over the next several years to fend off Twitter in court than pay $44 billion for a company he no longer wanted - or even the $1 billion break-up fee. Financially, it was obvious.

And eventually, Musk reasoned, Twitter would fold. Running a company while simultaneously trying to force a billionaire with buyer’s remorse to acquire it would be bizarre -and deeply unsettling for workers and advertisers alike.

The above, of course, is a nightmare scenario. But given what has transpired in recent days, it is also entirely possible. Just last week, Musk’s lawyers accused the firm of a “material breach” of the takeover agreement, because it had apparently not provided the information Musk had demanded on how it analyses the quantity of fake, or “bot”, accounts on Twitter.

Twitter has said in public disclosures - for eight years - that the figure is about 5 per cent. Musk suspects it could be much, much higher, and possibly grounds for walking away. Or at the very least, paying a much lower price. Twitter responded in kind, agreeing to give Musk access to its “fire hose” of 500 million-plus daily tweets to analyse, while reiterating that it intends “to close the transaction and enforce the merger agreement at the agreed price and terms”.

As if there were not enough chaos, the attorney general of Texas, where both Tesla and SpaceX happen to be located, announced his own investigation into Twitter’s bot estimates. He cited “intense scrutiny in recent weeks” of the issue. This scrutiny, of course, was ginned up entirely by Musk, who to date has produced no evidence to back up what appears to be no more than a hunch.

If Twitter has underreported it’s number of fake bot accounts these numbers might have negatively impacted Texas consumers and businesses.

We need more information — that’s why I’ve launched an investigation to get the answers we need. https://t.co/tqSFExwOh9

— Attorney General Ken Paxton (@KenPaxtonTX) June 6, 2022

Lost amid the hullabaloo: Twitter itself. The $30 billion company employs more than 7,500 workers and has a chief executive who swept into the top job just seven months ago with grand plans to overhaul an organisation that has long been a byword for corporate dysfunction.

Parag Agrawal, 38, was hand-picked by co-founder Jack Dorsey. He has pledged to massively increase Twitter’s daily user count from 217 million users to 315 million, and its sales from $5 billion to $7.5 billion. In a booming market, that is a big ask. This is not a booming market: analysts forecast that digital ad revenue globally will grow just 10 per cent this year.

Twitter co-founder Jack Dorsey. Picture: AFP

Put another way, Agrawal needs to grow Twitter five times faster than the market to meet his goal.

I took this job to change Twitter for the better, course correct where we need to, and strengthen the service. Proud of our people who continue to do the work with focus and urgency despite the noise.

— Parag Agrawal (@paraga) April 27, 2022

And he needs to do so in an economy on the cusp of recession, and with a famously erratic bidder looming who has promised to turn Twitter inside out - and fire Agrawal - should he actually buy the company. (Musk said he had no confidence in the current management.)

That cocktail of factors has led to malaise inside Twitter. This was summed up last month by an executive who kicked off a staff meeting with a slide emblazoned with just two words: “Why Bother?” As in, why bother working hard if you are about to get fired, or your project is about to get binned, once, or if, Musk walks in?

Agrawal acknowledged this last month on announcing a management reshuffle. “Some have been asking why a ‘lame duck’ CEO would make these changes if we’re getting acquired anyway,” he tweeted. “The short answer is very simple: while I expect the deal to close, we need to be prepared for all scenarios and always do what’s right for Twitter.” So what is right for Twitter? It depends on who’s running it - and that’s the problem.

We announced changes to our leadership team and operations yesterday. Changes impacting people are always hard. And some have been asking why a “lame-duck” CEO would make these changes if we’re getting acquired anyway. The short answer is very simple:

— Parag Agrawal (@paraga) May 13, 2022

Founded in 2006, two years after Facebook, Twitter brought in just $5.2 billion in turnover last year, or about 4 per cent of Facebook’s $117 billion in sales. It is such stats that have led people such as billionaire investor Joe Lonsdale to call Twitter “uniquely dysfunctional”. Mark Zuckerberg famously described it as a “clown car that fell into a gold mine”.

A core problem is that its advertising platform is primitive next to the likes of Facebook, Snap and TikTok. So-called direct-response ads - which aim to get users to buy something, visit a site or sign up to a service - are the industry’s bread and butter. Yet Twitter’s system for targeting audiences is limited. It has also focused much energy on attempting to improve the user experience, less on turning it into a vibrant, powerful engine for advertisers. So when it is time to spend money, advertisers go elsewhere.

A cocktail of factors has led to malaise inside Twitter. Picture: AFP

Agrawal has put a lot of emphasis on improving these tools, as well as on “brand advertising”, in which companies place ads to increase public awareness. That effort is central to his plans to hit next year’s turnover target. Indeed, he recently deprioritised projects such as newsletters and its audio Spaces feature to focus on user growth, which will, theoretically, help bring in more ad dollars.

Musk has very different plans. He has professed that he “hates” advertising. He has assembled a coalition of investors who will put at least $7 billion into the deal, should it happen. In his pitch, he told them he planned to quintuple revenue to $28 billion by 2028, a dramatic increase that would come mostly from Twitter’s nascent “Blue” subscription business, where people pay $3 a month to access features. He floated other ideas too, such as charging governments for using the service and making publishers pay for embedding tweets in their stories.

And the ad business, which today accounts for 90 per cent of sales? It would grow - from $5 billion to $10 billion by 2028 - but would account for less than half the sales pie under Musk’s plan.

Twitter is operating in a strange state of corporate purgatory. Its chief executive is a dead man walking if Musk proceeds, but in the meantime, is proceeding as if he does not exist. Picture: AFP

Beyond his strategy, there is also the question of culture. Agrawal told staff they could work at home “forever”. Musk told Tesla staff via email this month that remote work was “no longer acceptable” and they needed to show up to the office for at least 40 hours a week. Those who did not comply, he wrote, should leave.

At an all-hands meeting inside Twitter last week, an executive told anxious coders that the remote-work pledge was not protected in the merger agreement. According to tech newsletter Platformer, attrition is, not surprisingly, on the rise.

Which circles back to the biggest question: what is Musk playing at? Does he genuinely want to buy Twitter, but just for a much lower price? Or is he using the bot issue as a figleaf for buyer’s remorse?

His realisation that there might be lots of bots on the platform does seem rather odd. When he announced the deal, he declared that one of his goals would be to “defeat the bots or die trying”. He not only knew Twitter had a bot problem, it was one of the reasons for his takeover.

If our twitter bid succeeds, we will defeat the spam bots or die trying!

— Elon Musk (@elonmusk) April 21, 2022

The result is that Twitter is operating in a strange state of corporate purgatory. Its chief executive is a dead man walking if Musk proceeds, but in the meantime, is proceeding as if he does not exist. The Tweeps, as employees call themselves, are working on projects that could get cancelled as soon as Musk walks through the door. He may even impose massive lay-offs.

If he walks away, staff may have more job security, but their share-based pay will plunge with the stock price. That is because the takeover bid has buttressed Twitter’s stock, which, despite its 24 per cent fall, has held up better than some of its rivals amid the sharpest correction in tech stocks since the dotcom crash.

Musk said the bid was “on hold” until the bot issue was cleared up. Picture: AFP

Musk seemed to be setting the stage last week to paint Twitter’s unwillingness to give him the bot data he wanted as a contractual escape route that would let him walk without being on the hook for the $1 billion break-up fee - or, at the very least, as giving him leverage to renegotiate. Twitter appeared to head off that strategy by opening its fire hose. Musk can now see whatever he wants.

And so the circus goes on. Musk said the bid was “on hold” until the bot issue was cleared up. Yet he has given no stock market announcement to that effect. His tweets don’t make it so. And so Twitter is proceeding as if nothing has changed. It said last week that it is heading toward a shareholder vote as soon as next month.

In the meantime, Twitter is stuck in no man’s land - and Musk will, no doubt, keep it there, one tweet at a time.

The Times