Elon Musk, Twitter, and questions of diligence

In July, Twitter sued Elon Musk for his failure to complete his $44 billion acquisition of the company, a process he formally initiated in April. Musk subsequently filed a countersuit in which he alleged that Twitter was not telling the truth about some aspects of its business, including the number of fake and automated accounts on the service. The case won’t be heard by Delaware’s Chancery Court until October 17; still, court filings by each party have contributed to a steady stream of coverage. In a motion filed last week, Twitter’s legal team claimed Musk has not turned over all of his text messages related to the deal, as required by the court. In particular, Twitter’s lawyers said there are “substantial gaps…corresponding to critical time periods,” including the one during which Musk was allegedly reconsidering his acquisition plans.

As part of its submission, Twitter entered several pages’ worth of text messages it had received from Musk, including some from technology investors who seemed desperate to get a piece of the Twitter deal. Jason Calacanis, an angel investor and entrepreneur, told Musk, “You have my sword,” an apparent reference to the movie The Lord of the Rings. Antonio Gracias, another investor and a former member of the Tesla board of directors, told Musk that free speech is “a principle we need to defend with our lives or we are lost to the darkness.” Other texts to Musk included suggestions about what adjustments the sender believed Musk should make to the platform. Mathias Döpfner, CEO of Axel Springer, argued that it would be best if his company ran Twitter (“Would be a real contribution to democracy”), and one texter, identified only as TJ, exhorted Musk to “buy Twitter and delete it” and “please do something to fight woke-ism.” Still others offered significant financial investments: Larry Ellison, the CEO of Oracle, messaged Musk that he is in for “a billion…or whatever you recommend”; Marc Andreessen, a top Silicon Valley venture investor, informed Musk that $250 million is available “with no additional work required.”

In a recent column for The Atlantic, Charlie Warzel argued that the texts with Musk “shatter the myth of the tech genius.” The unavoidable conclusion, Warzel wrote, “is just how unimpressive, unimaginative, and sycophantic the powerful men in Musk’s contacts appear to be. Whoever said there are no bad ideas in brainstorming never had access to Elon Musk’s phone.” According to one former social media executive who spoke with Warzel, and who has relationships with several of the figures identified in the Musk texts, “the dominant reaction from all the threads I’m in is Everyone looks fucking dumb.” Another common reaction, the same executive said, is to ask whether this is how business is actually done. “There’s no real strategic thought or analysis,” the executive said. “It’s just emotional and done without any real care for consequence.” 

The apparent eagerness among Musk’s contacts to involve themselves in his vision for Twitter, while not exactly surprising, nevertheless suggests “something deeper about the brokenness of this investment ecosystem and the ways that it is driven more by vibes and grievances than due diligence,” Warzel writes. It’s not just Musk’s inner circle who apparently haven’t spent much time thinking about the acquisition—Musk’s own texts sometimes give that impression as well. In an exchange with Parag Agrawal, Twitter’s CEO, Musk moved rapidly from “I’m not joining the board. This is a waste of time” to “Will make an offer to take Twitter private.” A month after he first announced his bid to acquire Twitter, Musk texted with Michael Grimes of Morgan Stanley about doing due diligence, something people typically do before making a bid.

The text record also shows that, minutes before he told Agrawal that he would be making a takeover bid for the company, Musk told his own brother, Kimbal, that he was thinking about creating a competing service much like Twitter, but based on the blockchain and paid for with cryptocurrency. (“You have to pay a tiny amount to register your message on the chain, which will cut out the vast majority of spam and bots. There is no threat to choke, so free speech is guaranteed.”) Two weeks later, after being messaged by people close to Sam Bankman-Fried, a billionaire cryptocurrency investor, Musk stated that “blockchain Twitter isn’t possible, as the bandwidth and latency requirements cannot be supported by a peer-to-peer network, unless those ‘peers’ are absolutely gigantic, which defeats the purpose of a decentralized network.”

In April, during the coverage of Musk’s acquisition offer for Twitter, a number of observers wrote about his laissez-faire approach to making such deals. At a ted event around that time, Musk remarked that “I don’t care about the economics” of the deal; according to a report in the Times, he also admitted to a friend that he “had no plan for how to finance or manage Twitter.” Writing for Wired, Gilad Edelman noted that “the most likely explanation for Musk’s conflicting statements is that he’s simply making this up as he goes and has not given any serious thought to how content rules should work on the social platform that he’s trying to spend $44 billion to buy.” 

Here’s more on Twitter and Musk:

• Entourage: Famed Hollywood agent Ari Emanuel has offered to help broker a deal between Twitter and Musk, according to Bloomberg. “Emanuel contacted Twitter board member Egon Durban within the past few weeks and suggested the two sides find a solution to their dispute over the buyout ahead of upcoming court proceedings,” Ed Hammond reported for the outlet. The story noted Emanuel’s close ties to both Musk and Durban: Durban sits on the board of directors at Endeavor Group Holdings, the talent agency founded by Emanuel; Musk held a seat on the Endeavor board and stepped down earlier this year. 
• Weak stance: The text record “likely puts Musk in a weaker legal stance,” Dan Inves, a Wedbush Securities analyst, told Business Insider. Matthew Schettenhelm, a litigation analyst for Bloomberg Intelligence, said Musk’s texts appear to tell a story that is “in tension with his lead argument,” because he refers to purging fake users, suggesting that he knew the extent of the problem. The messages also suggest Musk was considering a competing service, Ann Lipton, a Tulane University law professor, told the Washington Post. “To the extent Musk is armed with confidential internal Twitter data that he could use to harm the company in the future—perhaps by establishing a competitor—that might weigh in favor” of forcing Musk to close the deal, she said.

Other notable stories:

• Former president Donald Trump has sued CNN for defamation, with his lawyers claiming that a range of critical statements about Trump constitute actual malice by the network, reports Bloomberg. CNN did not comment on the lawsuit, which, per Bloomberg, seeks “at least $475 million” in damages. In other Trump news, the Wall Street Journal’s editorial board recently condemned the former president’s violent rhetoric, after Trump asked whether Senate Republican leader Mitch McConnell “hated” him and then wrote that McConnell “has a DEATH WISH.” The board called Trump’s “tirade” and provocation of violence “reckless.” (ICYMI, CJR’s Jon Allsop wrote about the relationship between Trump and Murdoch-owned news outlets, including the Journal, last month.) 
• Ksenia Sobchak, a Russian journalist who often shares stories critical of Russian military efforts, is reportedly being investigated by Russian law enforcement for publishing a story that authorities have termed “fake.” The investigation was first reported by a Russian state news agency; Sobchak has not been charged but, according to a report from Reuters, could face a three-year jail sentence if she is.
• The Telegraph reports that a media blackout in Ethiopia has severely limited coverage of the violent civil war happening in the country. “There has been hardly any reporting on the conflict after the Ethiopia government cut phone and internet lines to the region and almost completely stopped media access to hide the extent of the fighting,” the paper notes. Last week, the BBC reported on the intensity of the war, calling it one of the world’s most hidden conflicts. In June, CJR’s Feven Merid wrote about press-freedom concerns in the country. 
• Mobile phones belonging to at least two Mexican journalists and a human rights activist were infected with Pegasus spyware between 2019 and 2021, according to a new investigation by Red en Defensa de los Derechos Digitales, a Mexican digital-rights organization. The findings were confirmed by Citizen Lab, a cybersecurity watchdog at the University of Toronto, which noted that the infections “occurred after Mexico’s current President, Andrés Manuel López Obrador, assured the public that the government no longer used the spyware and that there would be no further abuses.” 
• German media giant Bertelsmann, which owns Europe’s largest television group, RTL, as well as Penguin Random House, faces pushback from regulators as it attempts to consolidate more media companies under its umbrella, reports the Financial Times. Bertelsmann is attempting to acquire Simon & Schuster, the world’s fourth-largest book publisher, but the Department of Justice claims the deal would damage competition. The company faced a similar challenge when France’s competition authority blocked its attempt to merge its French TV channel with a larger one.