420 Redux

Hopefully Tesla’s and Space X’s management teams were hard at work today because their fearless leader was focused on other business.  In making a half-assed offer to purchase Twitter Inc. (TWTR) this morning, Elon Musk succeeded in filling CNBC’s largely vacuous news cycle and rendering the securities laws even more toothless than ever, but did nothing to generate profits for shareholders of his auto and space companies.  His acolytes suggest that he has bigger fish to fry at TWTR (Tweeting from space? Vindicating the First Amendment?) but eventually his excessive self-regard and blatant disregard of the securities laws are going to land him in the legal frying pan.  Stock manipulation is still against the law and Mr. Musk is still working off his phony buyout offer for Tesla, Inc. (TSLA) from four years ago.  It is almost as if he won’t be satisfied until he leaves the SEC with no choice but to shut him down or risk losing its legitimacy as a market enforcer.

Let’s be clear – the odds of Mr. Musk buying TWTR are about the same as those of Cathie Wood’s Chernobyl Fund (ARKK) ending 2022 in the black – roughly zero (ARKK is more likely to approach zero than breakeven though it won’t sink that low).  As serious as Mr. Musk may be about his criticisms of TWTR’s business practices, his was not a serious bid.  Nobody makes a serious bid for a $35 billion company without arranging financing regardless of their means.  Financing a bid that size even for Mr. Musk requires a great deal of effort in terms of liquidating or pledging a large chunk of his TSLA stock (which would impact that company’s stock price in unpredictable but probably negative ways). In all fairness, Mr. Musk is not a financier – he is a tech visionary who plays by his own set of rules.  But he knows enough by now (certainly after the mess he created in 2018 with his pretend buyout bid for TSLA) to understand that he can’t just toss out bids for public companies without any serious planning.   His appointment to TWTR’s board already quickly aborted (perhaps after regulators intervened) and public shareholders have a right to be treated seriously.  There is a difference between being a maverick and a wrecking ball.  TWTR will survive but its shareholders and employees should not have to suffer the type of uncertainty Mr. Musk is creating.

TWTR’s market cap is roughly $35 billion and the stock is down ~37% from its peak last July.  There are serious questions about its business model and profitability. Some people think the company can be extremely profitable, others disagree.  The other major social media platform company, Meta Platform Inc. (FB), also saw its stock lose roughly 40% from its peak (and its name change is not helping).  Social media is in many respects toxic, but it is toxic because a fair number of human beings who use it are toxic.  Otherwise it is just a technology like any other that is used properly by many people and abused by many others.  Mr. Musk has every right to object to how TWTR is managed and how people use its services, but he doesn’t have the right to manipulate the company’s stock.  If he was serious about buying the company, he needed to act like it.  So far it appears that he is just amusing himself at everybody else’s expense and unnecessarily placing himself in potential legal jeopardy which is also very unfair to TSLA shareholders.

Michael E. Lewitt

mlewitt@thecreditstrategist