The Washington PostDemocracy Dies in Darkness

Musk sells $6.9 billion in Tesla shares ahead of Twitter trial

World’s richest man girds for court battle with social media platform, which wants to compel him to complete $44 billion deal

Elon Musk has sold nearly 8 million Tesla shares, regulatory filings show. (Jae C. Hong/AP)

Elon Musk has sold millions of Tesla shares in recent days, raising nearly $7 billion, to prepare for the possibility he might be forced to buy a company he no longer wants.

Recent Securities and Exchange Commission filings show Musk sold 7,924,107 shares of his electric vehicle company Friday through Tuesday, raising $6.9 billion. The move underscores doubts that Musk can seamlessly back out of a $44 billion deal to acquire Twitter and highlights the extent to which Tesla is being dragged into a high-stakes dispute between a leading social media company and the world’s richest man.

Musk agreed to buy the company in April then spent months threatening to walk before finally “terminating” the agreement in July, alleging Twitter hadn’t given him enough information about its business. Within days, the platform slapped him with a lawsuit to prevent him from backing out.

Though Musk did not disclose a reason for the stock sale in regulatory filings, he made his motivation clear on Twitter late Tuesday: “In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock,” Musk said in a tweet.

In his pursuit of Twitter, which Musk has likened to a digital town square, he lined up $46.5 billion in financing, including one loan that uses his Tesla shares as collateral. A July 21 regulatory filing revealed the first two loans would come from investment bank Morgan Stanley and other lenders, worth $13 billion and $12.5 billion, respectively, while the third would be a $21 billion equity commitment from Musk himself.

A later filing detailed an eclectic mix of financiers that would help Musk come up with the cash, including a member of the Saudi royal family, the cryptocurrency exchange Binance, Oracle co-founder Larry Ellison, the sovereign wealth fund of Qatar, and several hedge funds.

He last sold Tesla shares April 28, at which point he tweeted, “No further TSLA sales planned after today.” According to SEC filings, he sold about $8.4 billion worth of stock.

Then he wanted out, accusing the company of having “failed or refused to” release information that would help Musk and his team ascertain the true number of bots or spam accounts on Twitter. He says he became increasingly concerned as he learned more about the platform’s methods for verifying its users, to the point that he could no longer go through with the deal.

Though Twitter had initially resisted Musk’s overtures — going so far as to adopt a “poison pill” strategy to make its shares less attractive to him — it filed a lawsuit to enforce the transaction.

“Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he — unlike every other party subject to Delaware contract law — is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” the company wrote in a fiery legal complaint, referring to Musk’s exit strategy as a “model of hypocrisy.”

A trial date has been set for October. In the meantime, both sides appear to be girding for a protracted legal brawl. Several of Musk’s associates have been subpoenaed about the deal, The Washington Post reported last week. There also has been a flurry of contentious court filings.

Investors in both Tesla and Twitter seemed to react positively to the news, with shares surging 3.9 percent and 3.7 percent, respectively, amid a broader stock market rally. At $44.43 per share Wednesday, Twitter’s stock price is close to where it was when Musk offered to buy it for $54.20 a share on April 14.

The stock climbed earlier in the year as Musk bought shares in advance of his takeover attempt, then fell throughout the summer as tech stocks faltered and Musk’s relationship with Twitter publicly soured. The price has recovered more recently amid a broader resurgence for tech stocks.

Some investors view Musk’s Tesla stock sales as a tacit admission that he is likely to lose in court. The wealth management firm Wedbush recently raised its price target for Twitter from $30 to $50.

The chances of a deal are viewed as significantly higher, either by order of the Delaware court or with the two parties coming up with a new agreement to avoid a court showdown, Wedbush senior analyst Dan Ives wrote in a note to investors.

Wall Street is “seeing through this poker move by Musk,” Ives wrote.

Even if Musk prevails in court, he could still be on the hook for the $1 billion breakup fee that was written into the agreement.

Carl Tobias, Williams professor of law at Richmond University School of Law, says he thinks the two parties will settle the matter before it is decided by a court.

“I think [Musk] has a weak case and the judge is holding his feet to the fire,” Tobias said.

He added that neither side of the dispute really wants Musk to be in charge of the social media giant at this point, and they are probably trying to find terms of departure that “allow everybody to save face.”