Would Elon Musk buy Twitter or wouldn’t he? In mid-2022, that was the $44 billion dollar question at the heart of a legal battle between the Tesla and SpaceX founder and the social media platform now known as X. But a deeper question was largely overlooked: From the mess the parties got themselves into, was a mutually beneficial resolution possible? A proposal from Program on Negotiation chair Guhan Subramanian, an M&A negotiation strategy expert, suggests it could have been.
An Impulse Purchase
In April 2022, Musk, then the world’s richest person, signed a legally binding agreement to purchase Twitter for $54.20 per share, or $44 billion. A prolific Twitter user and longtime fan of the site, Musk was so eager to buy the platform that, eschewing M&A negotiation strategy best practices, he waived his due-diligence rights.
Musk said he planned to dramatically increase Twitter’s users and revenues, pursue “free speech” on the site, and reduce the number of bots. While some cheered the prospect of a shake-up at the stagnating site, others worried about the mercurial and impulsive Musk’s potential influence on Twitter, such as the possibility of an increase in hate speech and disinformation.
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The Deal Sours
Soon after the deal was reached, tech stocks, including those of Musk’s own Tesla, experienced a major sell-off. Twitter shares plunged more than 20%. Musk seemed to suffer a prepurchase version of buyer’s remorse. In a July 8 regulatory filing, his lawyers moved to cancel the agreement, saying Twitter hadn’t provided sufficient data on bot accounts for him to reach an accurate estimate of their number. The filing accused Twitter of being in “material breach of multiple provisions” of the deal agreement, the New York Times reports.
Twitter responded by suing Musk to force the acquisition to close. He was using the bot issue as an excuse to get out of the deal after his own personal fortunes changed, Twitter argued.
Applying M&A Negotiation Strategy to Dispute Resolution
Most corporate law experts expected Twitter would prevail and that Musk would be forced to acquire the company. This would leave the company with “an unwilling and mercurial owner of the global town square,” according to Subramanian.
A better outcome was possible through the creative pretrial settlement negotiations, argued Subramanian. Musk could try to negotiate a discount from the agreed-upon $54.20 share price by offering an appealing incentive.
“The carrot that Musk should offer is guardrails on his right to regulate speech on Twitter,” Subramanian proposed. That is, Musk could agree to “permanently and irrevocably delegate all content-moderation decisions on Twitter to a panel of third-party experts,” Subramanian suggested, in exchange for a discount from the current deal price.
Twitter’s board would then need to choose between settling for a lower sale price along with guardrails on Musk’s ownership or fighting in court to maintain the higher sale price. “Accepting $48 plus guardrails would be good for society, while $54.20 with no guardrails would be good for Twitter shareholders,” said Subramanian.
If Twitter were to take the lower price plus guardrails on Musk’s involvement, it would likely face a lawsuit from plaintiffs’ lawyers for leaving money on the table. But the Delaware Chancery Court could have carved out a narrow exception to the requirement that boards maximize value when selling the company, argues Subramanian. Given Twitter’s role as a quasi-public utility, “the Delaware Chancery Court should not punish Twitter for doing the right thing for society,” Subramanian said.
Opportunities Lost
Rather than following this type of innovative M&A negotiation strategy, Musk opted to move forward with the acquisition at the previously negotiated price of $54.20 in exchange for Twitter dropping its lawsuit. Musk’s legal team apparently calculated that they would not be able to make a persuasive case that Twitter had breached its contract.
Immediately after the deal closed on October 27, 2022, Musk threw the company into chaos, laying off about half its workforce, which prompted many more employees to resign. Musk began restoring banned accounts, relaxing hate-speech policies, and charging users to verify their accounts. In July 2023, he changed the platform’s name to X. A year after the acquisition, the company revealed it had lost about half its value, down to about $19 billion from Musk’s purchase price of $44 billion. Advertising revenue had dropped by 60%, and usage had declined by 15% to 16%.
As Subramanian’s proposal suggests, disputants in business negotiations often have opportunities to move beyond win-lose outcomes and fashion creative deals. In both negotiation and dispute resolution, the first step in moving beyond adversarial posturing is to see the possible benefits that can come from exploring each other’s interests. Musk’s M&A negotiation tactics failed to capitalize on such opportunities—and his deal has proved disastrous.
What lessons have you learned from other examples of M&A negotiation strategy?
Thank You @Guhan Subramanian for this post. Your demonstrated proposal of a lower share price plus guardrails would definitely be one solution, and paves the way for more solutions to be explored (particularly with the use of technology). I’m sure if the parties look deeply (probably with insights from sector specific expert in strategic negotiation) they can actually find a better mutually beneficial resolution by negotiation and/or mediation then just by the Court judgment. They need to look for solutions that are beneficial to society which will in itself benefit the long term interests of shareholders too.