Toying With Bad Management

Musk has pulled out of the Twitter deal.

By the time Twitter (TWTR) gets this acquisition through the courts which is now estimated as much as 5 years, Twitter will be bankrupt.

There will naturally be some movement before then.

Regardless of timing, Twitter shares are set to plunge. And you can't then blame Elon Musk for Twitter's demise and poor management.

In fact, Twitter is quite infamous in Silicon Valley for one of the worst management teams and this open secret has come back to hurt them in the wallet.

This is highly bullish for Tesla’s (TSLA) stock because it avoids Musk’s capital getting tied up in an overpriced Twitter deal.

TSLA stock bounced on this news and even if he does reverse course and buy Twitter for a discount as it drops fast, it will be seen as a great bargain for Musk and TSLA shares.

Tesla’s CEO announced his plans to buy social networking site Twitter in April for $44 billion and many thought this wasn’t a serious offer to begin with.  

The contract says that Musk is required to pay a $1 billion breakup penalty and he has indicated that he is also trying to get out of that.

I believe Twitter was foolish in setting such a low break-up fee for the richest man in the world.

For most people, a $1 billion fee would be astronomical, but not when one can just liquidate a few odd Tesla shares with a snap of the fingers.

This low fee has been exploited and leveraged to get what he wants because he doesn’t care if he has to pay it.

In hindsight, management should have set Twitter’s breakup fee at a level which would have hurt the richest man in the world meaningfully and created a massive windfall for Twitter.

They didn’t and now the circus begins and who knows when, who, and how much will be the payout if any.

My guess is a termination fee of something around $10 billion would have been quite painful and cost-prohibitive for Musk.

Readers should remember that Musk offloaded $4 billion of Tesla shares around April to pay for Twitter. He sold out at all-time highs and so even if he paid back the $1 billion, the penalty is largely blunted by shifting around his resources.

My guess is that Musk exploits this situation to drain Twitter of its financial resources while buying its stock on the way down.

After he beats the company into submission, there will likely be a huge discount.

If the stock goes to $25, he’ll get a 60% discount on what at first would have been a $44 billion price tag.

Twitter has been fooled big time, made to look incompetent which exactly was the working assumption taken into this deal, which management has totally botched.  

TWTR is trading at $34 today which is a far cry from the $54.20 he agreed to buy Twitter at.

This isn’t about Musk because everyone with half a brain would pull out of this deal with a deleveraging tech bubble.

My bet is Twitter slowly grinds lower and Musk finds a way to get Twitter on the cheap then fires the whole management team.