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ERICA PANDEY: Welcome back to "How It Happened." I'm your host for this season, Erica Pandey. By now, you know Elon Musk makes big moves that often catch the world by surprise.
That happened again this week when Musk sent a letter to Twitter declaring that he would proceed with his offer to purchase the platform after all.
To catch you up quick: In April, Musk made an offer to buy Twitter. Shortly after, he tried to reverse course. Twitter sued him to go through with the deal, and the trial was scheduled for mid-October in Delaware Chancery Court.
But just days before the trial start date, Musk decided to proceed with the sale. Off this news, we wanted to bring you a conversation between two of our top reporters who've covered every twist and turn in this saga, media reporter Sara Fischer and business editor Dan Primack. This episode was recorded on Wednesday, Oct. 5.
Elon Musk to proceed with the Twitter deal
SARA FISCHER: Hey Dan.
DAN PRIMACK: Hey, Sara.
FISCHER: So Dan, a lot has just gone down. What just happened? Lay it out for us.
PRIMACK: The big thing that happened is that Elon Musk has suddenly reversed course and decides he wants to buy Twitter again at the price he agreed to buy it for back in April, $44 billion. Late Monday night, Musk's lawyers sent a letter to Twitter's lawyers, basically saying, 'I know we've been suing each other over this, but don't worry, I am now prepared to proceed and go forward.'
He also put two conditions on that — one, that he actually secures the bank financing, then also that there be a stay of the trial granted by the court. That's a little bit more complicated because the court actually has to agree to do that, and both parties need to ask the court to do that.
FISCHER: OK, so the judge says that she'll continue to press on toward the trial because there has not been a request by Twitter.
PRIMACK: There's not been a request by Twitter, by Elon Musk or any parties associated with either one of them. Nobody's asked the court to stay this case as of Wednesday afternoon.
Could Musk's deal to buy Twitter still collapse?
FISCHER: OK, so what's Twitter's reaction to all of this?
PRIMACK: Twitter's formal reaction has been to repeat the same line it has been repeating over and over for months, which is, 'We intend to complete this transaction at $54.20 per share.' Behind the scenes though, Twitter is basically trying to figure out if Musk is somehow trying to screw them. In short, Twitter does not trust Elon Musk, and they're certainly not just gonna trust a letter that has no legal binding to it. So they're trying to make sure that every i is dotted and every t is crossed and that the judge is signed off on all of this.
FISCHER: They're trying to assure that legally Musk cannot muscle his way out of this deal, even if he says, 'I now agree to the deal.'
PRIMACK: Think about it from Twitter's point of view. Elon Musk back in April said he wanted to buy the company, and he didn't just say it, he didn't just tweet it. There's a very detailed merger agreement. He already said he wanted to buy the company and then he walked away.
So if you're Twitter and you've already been burned by him once in terms of him reversing course, you can't put all your eggs in the basket that this time he's gonna follow through.
Twitter vs. Elon Musk
FISCHER: So Dan, I was planning to go to Delaware and actually see what would happen at this trial. Is it gonna look the same? Is there gonna be as much momentum around it? Is it gonna take the full five days? What do you expect is gonna happen now?
PRIMACK: The reality right now is we don't know if there's going to be a trial or not. It, it would be fairly strange to have a trial in which Twitter is saying, 'You have to complete this merger' and Elon's response is 'OK.'
Like that's a weird trial. But as of this moment, that that's what we've got, not only because Twitter wants to make sure that Musk is legally committed to doing this, but the court itself has a little bit of, uh, need here to maintain its own relevancy going forward in other similar cases. So there is a reason for the court to want so-called specific performance, which is what Twitter's asking for. It's this legal term of art whereby somebody who agrees to buy a company is forced to buy the company they agreed to buy. If you're the court, you kind of want that somewhere on the record because that will serve as a, a warning shot for some future acquirer.
FISCHER: Well, some of the craziness about it that seemed so unprecedented was that Elon Musk pursued this company with such conviction, offering a huge premium on the share price at the time that he signed that merger agreement, but then he started to walk back, and no one could really tell why. Was it because he was trying to actually back out of the deal? Was it because he was trying to lower the price?
Then for him now, right ahead of his deposition and right ahead of the trial, to come back and say, 'You know what, I'm gonna stick to the agreement.' There must have been some sort of change in thinking, you know, maybe he didn't want something to get out during the trial.
Maybe he just figured he was gonna lose and that would be embarrassing. Why do you think he made this decision?
PRIMACK: I think he made it because he knew he was gonna lose. I've spoken to a bunch of friends and kind of call them advisers to Elon over the last couple days and really over the last couple months. And the sense you get is that he's been increasingly pessimistic about his odds of winning in court.
And the reality is, if you don't think you're gonna win a lawsuit, it's not worth pursuing that lawsuit much longer. First, because it's expensive, and second, it can be very embarrassing. Not just losing, nobody likes to lose, but you're talking about a case in which there's a lot of discovery of all of his text messages and Signal messages, and maybe even finances. I don't think anybody, any of us, want all of our text messages showing up on the front page of the New York Times.
FISCHER: So what happens next? The trial perhaps goes on. Perhaps there's a settlement. How long does it take for this deal actually to close, and then once it does close, what do you think Elon does?
PRIMACK: Folks kind of associated with this believe that, assuming there is a settlement, that it gets agreed upon and that the court agrees upon, that the deal should close sometime around year-end.
Can Elon Musk back out of buying Twitter?
FISCHER: What is the best-case scenario in these next few months for Elon and what's the best-case scenario for Twitter?
PRIMACK: The best-case scenario for Elon is that there's some sort of bombshell and he doesn't have to buy Twitter anymore for $44 billion. I can't conceive of what that is, or again, that this thing somehow does go to trial and his lawyers are better than Twitter's lawyers and they persuade the judge to, to let him off the hook.
That's the best case. He just gets to walk away with this with some egg on his face and move on and keeps his Twitter account. What most likely happens, though, either by court or by settlement, is that he will acquire this company and then he now needs to figure out a way to make it worth more than $44 billion.
He's got a little bit of leeway that the current management doesn't, because it won't be a publicly held company. He doesn't have to worry about hitting quarterly numbers. But in the end, he's gotta introduce new product. He's gotta expand what Twitter does, he's gotta expand his user base. He's gotta make it young. He's basically gotta make Twitter cool again.
PANDEY: We'll be right back.
[AD BREAK]
PANDEY: We're back with Dan Primack and Sara Fischer.
Twitter employees react
PRIMACK: So Sara, I've got some questions for you. For starters, what is happening inside of Twitter with the rank and file?
FISCHER: I think the rank and file is nervous. Leading up to this point, there's been a little bit of senioritis within Twitter. You know, they're trying to act as though it's business as usual, but at the same time, management is preoccupied with getting a deal done.
They aren't reporting earnings in the same way that they used to when they were just fully publicly traded and they weren't considered in a takeover process, and they have to face questions about this deal every single day. I've talked to folks who are across the company in different departments, whether it's marketing or sales or communications.
They're definitely scared. I mean, people don't wanna lose their jobs. They know layoffs are likely. They're scared of the things that they've been building for a long time getting dismantled or changing. But there's also a sense of relief. This entire saga has weighed on them. And I think just knowing what the next path forward is for the company allows them to decide what's the next path forward for themselves.
At the outset of Elon Musk expressing interest in buying Twitter, employees were sort of excited — some of them because they thought, you know, we are a platform that's been known to innovate slowly, that's been slow to introduce new products, like maybe Elon could help to guide that process and maybe he could bring a diversity of thought.
Will Twitter transform into a Chinese super app?
PRIMACK: What might Musk's ownership of Twitter mean to Twitter users?
FISCHER: Musk has been a little bit scattered in terms of laying out a plan. For the past few years, all of the conversation around Twitter has been around content moderation and how do they adjust their policies to make sure that they're addressing hate speech and violence and terrorist content.
Now, at first, he was very open about saying he thinks there should be less content moderation on the platform, meaning less interference with accounts that have hate speech and violence, etc.
Less interference with accounts that, you know, may have been suspended or disciplined under the old Twitter regime. He has said that he would bring Donald Trump back onto the platform.
So one, users can expect that Twitter is going to be a more chaotic place, quite frankly, with less rules, more free speech, etc. On the flip side though, Musk seems much more excited about the product development at the company than he does the policies.
He really wants to focus on product development. He's a product guy, he's an engineer at heart. And what he's sort of hinted at is that he wants to make Twitter what we call a super app. A super app is a mobile app that has a lot of different functions inside it, which means that you could do messaging, you could buy tickets to your favorite concert. You could hail a cab, you could get your groceries delivered — all within one app.
In China, there's a bunch of apps like that. WeChat is probably the best example.
In the U.S., because our internet economy's a little bit older, we had so many different established companies that started before the mobile era. They all developed their own individual apps. So you don't typically buy your groceries on the same app that you would use to, let's say, do social media or buy tickets to a concert. Elon Musk is trying to bring that mentality of a super app here to the U.S. with Twitter.
PRIMACK: Do you think this saga and Musk wanting to buy it then backing off, then coming back, has that hurt Twitter and its value?
FISCHER: Well, it's made it complicated because on the public markets, Twitter's shares have risen and fallen for months drastically in response to every little twist and turn of this deal. But overall, I think what Musk has done is he's driven a conversation around Twitter, the future of the platform, its weaknesses and its opportunities.
Not only is it a business that grows a lot slower than its competitors, but it's business is not as resilient as some of its competitors to the current market right now. Twitter has been struggling a lot as a business. I think if it weren't for the Musk takeover bid, Twitter's stock would be in the toilet.
PRIMACK: What would you identify as the single greatest business challenge that Twitter has right now?
FISCHER: Right now, Twitter is mostly an ad-supported business, but compared to its peers, its ad business is growing much slower. Part of that is because they don't have enough ads that are being sold in a direct response way, meaning they're helping advertisers sell goods, not just say how great their brands are.
And then another part of the problem for Twitter is that they basically solely rely on ads. They have a little part of their business on licensing. But for the most part, it's not like they have a massive subscription business at this point, although they're trying to get into it. They don't have an e-commerce business, etc.
What Elon Musk, I think, is gonna try to do is figure out not just how he can build the product so that it's better for users, but how can he build it so that it actually makes money and that the business actually grows its revenue and profits significantly and much more quickly.
What Elon Musk's Twitter could look like
PRIMACK: If you were making a to-do list for Elon the day after he acquires Twitter, what would be on it?
FISCHER: The first thing he needs to do is audit the platform. Elon has talked about bots over and over and over, but it's not exactly clear what that means. When you talk about bots, some people use that interchangeably with spam. Spam accounts are typically used to get people to do something they wouldn't wanna do. Misleading content, getting them to click something they wouldn't have otherwise clicked.
Bots can sometimes be spam, but sometimes bots can be good. There are a lot of local municipalities that use automated accounts, bots, to be able to send out weather alerts when there are hurricane disasters or natural disasters, and so Elon Musk says he wants to get rid of all the bots.
Well, there are a lot of bots that are important to the platform, and so he's gonna have to figure out and define what is the type of spam accounts that he doesn't like. How many of them are actual bad bots versus good bots, and what does he wanna do about it?
FISCHER: Once he has that audit done, he can then start to figure out who are the right people in place or that I need to put in place to take this company to the next level. It seems likely he's gonna bring in his own top leaders. It seems likely he'll bring in a lot of his own engineering staff, the types of people that he thinks are gonna be well-suited to build out the products that he's envisioning for the company.
And then the third thing he needs to do is, he needs to do some serious research and development to figure out what is this platform capable of turning into and what does he need to get it there.
So Elon Musk might go in and find things at Twitter that are working that he wants to double down on. For example, he might take a look at Twitter's live audio feature called Twitter Spaces, a two-way conversation that can happen between many parties on the internet, and say, 'That's working and I wanna double down on it.'
Or he might look at other features and say, 'This isn't doing well enough.' For example, Twitter does have a subscriptions feature. They allow users to follow accounts that they really like and pay them to get more of their content. He might go in there and say, 'Hmm, this micropayment strategy isn't really effective. Not enough people are paying.' It's just all a matter of him going in and doing the research.
Typically, when a buyer comes into a company, they do so much due diligence on it. They do so much research on it that they have a good idea of what needs to get done next. Elon Musk waived his rights to due diligence in April.
Dan, you and I have been covering this for months now, and given what we've just discussed, it sounds like we've got another long few months ahead of us. Thanks for talking to me.
PRIMACK: Thanks for doing this.
PANDEY: I’m Erica Pandey. Amy Pedulla is reporter-producer. Naomi Shavin is senior producer. This series was reported by the Axios newsroom, including Dan Primack, Miriam Kramer, Joann Muller, Javier E. David, Jonathan Swan, Sara Fischer, Ina Fried, Hope King, and me. Fact-checking by Jacob Knutson.
Scott Rosenberg and Alison Snyder are series editors. Sara Kehaulani Goo is the editor-in-chief and executive producer. Mixing and sound design by Ben O'Brien and Alex Sugiura. Theme music and original score by Michael Hanf.
Special thanks to Axios co-founders Mike Allen, Jim VandeHei and Roy Schwartz. And thanks to Lucia Orejarena, Priyanka Vora and Brian Westley. If you’re enjoying the season so far, please take a moment to rate and review the show.
Thanks for listening, and we’ll be back.