The ongoing saga that is the Elon Musk show has taken yet another turn as the enigmatic Tesla CEO continues his push towards the takeover of Twitter. Potential legal issues regarding the $44 billion bid to buy the social media giant have seen shares in both Twitter and Tesla tumbling.
Tesla aficionados will be disappointed to hear that the electric car maker came off worst, with the stock dropping to $728 – a loss of almost 16%. However, investors in Musk’s new plaything – Twitter, barely fared much better, with shares falling nearly 10% for the week. It’s worth noting that both these drops are markedly higher than the S&P500, which saw a drop of 4.7% over the same period.
Of course, these drops are not exactly uncommon in what has been a particularly tumultuous week for the markets in general. However, many will rightly be questioning whether all the furor surrounding Twitter is having an impact on running the world’s most valuable car manufacturer.
Disgruntled shareholders
These latest legal challenges come from a report in the Wall Street Journal on Wednesday of this week. In it, it was reported that Musk was late in disclosing that he had purchased more than 5% of Twitter’s shares.
Allegations from some Twitter shareholders suggest that Musk hit the 5% ownership mark on 14 March of this year – which would give him until 24 March to make this known to the SEC. However, the report goes on to say that in fact, Musk did not make the disclosure until nearly two weeks later, on 4 April. The shareholders go on to suggest that this failure to disclose had a detrimental impact on less-wealthy investors, who sold their stock well in advance of Musk’s delayed disclosure.
This is just the latest in a long line of scrapes that Musk seems unable – or unwilling – to stay out of. On the same day, a California judge ruled against Musk in a long-running feud with disgruntled Tesla shareholders. Jurors in an upcoming shareholder lawsuit will now have full knowledge of a series of 2018 tweets from Musk that falsely and recklessly suggested funding was secured to take the company private when the deal wasn’t finalized.
Also Wednesday, a federal judge in California handed a group of Tesla shareholders a major victory, unsealing his ruling that Musk falsely and recklessly tweeted in 2018 that he had funding secured to take Tesla private when the deal wasn't final. The tweets pushed up Tesla's share price at the time.
Same old story
Of course, this wasn’t the first time these tweets landed Musk in hot water, with the SEC already bringing up a securities fraud charge against the Tesla owner which Musk and Tesla settled back in 2018. At that time, both agreed to a $20 million fine, as well as an ongoing agreement that all Musk’s tweets would be reviewed by a company lawyer. Unsurprisingly – the SEC is now investigating whether Musk has indeed already violated that agreement.
Musk recently lost a bid to have the settlement thrown out on grounds that it violated his First Amendment free speech rights. Many well-versed in his public manifesto for how Twitter will work under his reign will already know that free speech is something Musk has a strong belief in.
Since Musk made his $54.20 per share offer to buy Twitter public on April 14, the shares are exactly the same price — $45.08. Analysts say that's an indication of investor skepticism that the deal will go through even though Musk has lined up financing. Twitter shares are up 4.3% year to date.
Tesla shares, however, are down 26% since the April 14 offer, partly on fears that Musk will become distracted as Tesla, which is headquartered in Austin, Texas, opens two new factories and deals with supply chain issues. The shares have tumbled more than 30% so far this year.