11th November 2022
The acquisition of Twitter by Elon Musk is fascinating – at least to watch from the outside.

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I am not an American lawyer, and I have not seen any of the legal or other documents related to the acquisition.
Like many of you, I only know what I have read in the media and watched play out on Twitter.
But from the information available to me, and based on twenty years’ experience as an English commercial lawyer, there are three elements of this acquisition which may show us things about Musk’s approach to the issue of legal risk.
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The first element is the agreement to purchase, which Musk reportedly sought to get out of.
It would appear that he was unable (or unwilling) to do so, and so had to complete the purchase.
There were two things here which seemed odd.
The first odd thing was that an experienced business person like Musk, who presumably had access to legal advice, could even get seemingly trapped by such an agreement.
The second odd thing was his use of issues such as the number of bot accounts as a basis to get out of the transaction.
It seemed to me that such issues would normally go to warranties than to anything more substantial.
(In this context, a warranty would be a promise that a certain state of affairs existed which would allow a cash adjustment to the purchase price if the warranty was breached – and so the ultimate price of the purchase would be adjusted to what it would have been had the correct state of affairs been known.)
The issues he raised did not appear to me to be convincing, and many better placed observers were not convinced either.
It looked like Musk had put himself into a commercial situation he could not get out.
Few business people, following advice, would have allowed this to happen.
It was a curious situation.
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The second element of this acquisition is the reported disdain for regulatory and other legal risks by Musk and his new managers once Twitter was purchased.
On this, the New York Times has reported:

Musk “was used to going to court and paying penalties, and was not worried about the risks”.
This is an extraordinary position for any experienced business person – but it does accord to his approach to risk as described in the first element above.
Some of the regulatory and other legal risks now facing Twitter are not trivial, from data privacy to employment rights.
The approach described by the New York Times is not even cavalier – it is outright denial and disdain.
What a curiouser and curiouser situation.
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The third element is the very structure of the acquisition.
Musk may be conducting himself online as if he were a buffoon, but those lenders and investors also financing the transaction are serious people.
And if for some reason those lenders and investors were easily impressed by a charismatic figure, their legal advisers certainly would not be.
The position of these lenders and investors here is the greatest puzzle of all.
What were they thinking?
Reuters tells us these are the lenders and investors:

Even if Musk was in denial or disdainful about legal or other risk, these lenders and investors would not be.
Again, according to Reuters:
“Twitter faces interest payments totaling close to $1.2 billion in the next 12 months on the debt that Musk piled on it, following a string of interest rate hikes by the Federal Reserve, an analysis of the financing terms disclosed in regulatory filings shows.
“The payments exceed Twitter’s most recently disclosed cash flow, which amounted to $1.1 billion as of the end of June, according to financial disclosures Twitter made before Musk took it private on Oct. 27.”
Even if Musk’s antics were not foreseeable, the state of Twitter would have been obvious when lenders and investors did their due diligence.
Lenders and investors proceeded even though they were aware of the precarious financial state of Twitter.
Why would they do this?
Perhaps they were confident that Musk would suddenly turn the platform around and generate revenues in excess of costs.
Perhaps they took a view on the risks and thought they could just write it off if the investment went bad.
Or perhaps they were less interested in any return on investment than in the security they could enforce if the transaction went bad.
Some lenders plan on the basis that an investment will go well – and some lenders plan on the basis that it will not.
If Twitter defaults on the payments, it will be interesting – fascinating – to see what security is in place, if any, and what is enforced, if anything is enforced.
Even if Musk somehow though this transaction was free of risk, those who co-financed the transaction would not have done.
What will happen next?
The situation gets curiouser.
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Musk’s acquisition of Twitter is almost as if it were taking place in a magical business world where legal and other risks do not really exist.
A fabulous world devised by, say, Italo Calvino rather than our mundane real world of contracts and regulations.
Perhaps the fantasy will hold, and Musk will pull off a great commercial success.
Perhaps.
But us trudging legal sorts are used to seeing the downsides.
And the utter lack in this transaction of any visible risk-based approach by Musk is remarkable.
If this transaction escapes the world of fantasy, then Musk and Twitter will need to brace, brace.
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