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Outside the Box: I’m a Silicon Valley M&A pro, and my advice to Elon Musk is to stop his courtroom gameplaying over Twitter

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There is a lot more at stake for Elon Musk (and the companies he controls) in the unfolding Twitter drama than losing a Delaware Court of Chancery case and being legally compelled to pay billions of dollars over market price to buy Twitter.

The bigger issue is Musk’s reputation as a reliable business counterpart.

I have been involved in tech M&A in Silicon Valley for over 20 years and consider myself a fan of Elon Musk as an entrepreneur. I always root for Tesla
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SpaceX, Hyperloop, and all his other innovative endeavors to thrive and help build a better future for us all. That is why I am deeply troubled by the cavalier way Musk has called off the Twitter acquisition and his legal team’s posturing since.

On July 8, Musk notified Twitter that he is calling off the acquisition. He blamed Twitter’s failure to produce sufficient information regarding spam accounts (or spam bots) on the platform, which he considers to be a breach of the merger agreement. Four days later, Twitter sued Musk to force the billionaire to consummate the transaction. Whether Twitter was obligated to provide the information Musk requested and if so, did it fail to provide such information will be the focus of the trial in October.

There are two main theories as to why Musk wants out of the deal: (a) buyer’s remorse, or (b) genuine breach of contract by Twitter. If Musk’s actions are truly due to buyer’s remorse and a desire to get out of what he may consider to be a bad financial deal by grasping at some technical loophole in the contract, then he is clearly breaching his agreement in bad faith and thereby consciously setting fire to his own reputation as a high integrity member of the business community. A deal is a deal, even if it is a bad one in hindsight. He would not have let Twitter not sell to him if, for example, Twitter’s revenue skyrocketed after they signed the deal.

Instead, let’s consider the possibility that as he claims, Twitter has failed to comply with diligence and disclosure obligations under the merger agreement. Unfortunately, it is hard to take that possibility seriously when you consider Musk’s actions and his legal team’s court posturing.

The first problem here is that instead of suing to compel Twitter to disclose and provide what he needs, Musk walked away from the deal. That course of action makes little sense for someone who contractually commits to an acquisition, which his signature on that merger agreement indicates.

Imagine you find your dream house and enter into an agreement to buy it, but subsequently the sellers drag their feet on providing you with some of the key disclosure statements. Do you then simply call off the purchase or take all necessary action to force the sellers to follow through on their contract?

By insisting on calling off the deal before obtaining all the information that he needs, Musk is certainly sending the signal that his priority is to find a way out and not to obtain information and discover the facts about spam accounts.

“ A deal is a deal, even if it is a bad one in hindsight. ”

The second problem here is his legal team’s pushback against Twitter’s request for a speedy trial, arguing that their “dispute over false and spam accounts is . . . extremely fact and expert intensive, requiring substantial time for discovery,” asking that the trial date be set sometime next year. Yet Musk also asserts that he believes Twitter’s spam problems are severe and that underlies his decision to terminate the deal.

All this begs the question that if Musk has a justified belief here, why would his legal team need until next year to substantiate it in court?

And finally, there is a real human cost. Despite his public disputes with Twitter’s board or management, Twitter is a company with roughly 8,000 employees, mostly innocent bystanders caught in the crossfires. These employees’ lives have been put in limbo ever since the announcement of the acquisition in April.

To make matters worse, Musk even announced to all employees in June that he would likely lay off a part of the workforce. If he was truly committed to following through on the acquisition, would he want to demoralize the workforce like this?

For technology companies like Twitter, the biggest asset is the team. A serious acquirer would not want to prolong the time it takes to consummate a deal because any delay increases the risk of losing some of the most valued talent. That same acquirer would want to ensure the speediest resolution to any dispute that arises during the acquisition process.

As a former corporate attorney and someone who has been on multiple sides of M&A transactions since late 1990s, I would advise Musk to pay more attention to the court of public opinion and his reputation as an acquirer and business partner than playing courtroom games. He needs to come clean about the data that underlies his belief about Twitter’s spam problem and find the fastest way to bring this matter to a fair resolution.

Otherwise, regardless of how the court case unfolds, he (and his companies) will lose much credibility in any business deal. Who would want to enter any kind of meaningful contract with someone who has a reputation for reneging on their promises?

Touraj Parangis a veteran Silicon Valley dealmaker and is the president and chief operating officer at Serve Robotics, which he helped spin out of Uber. He also is the author of “Exit Path: How to Win the Startup End Game”.

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