Twitter's meltdown May

What’s likelier to fall apart in the next three months: Elon Musk’s deal to buy Twitter, or Twitter itself?

Both have been on somewhat shaky ground since the company’s board announced it had accepted Musk’s offer to take the company private for $54.20 a share.

The deal has looked shaky because of the way it forces Musk to take out expensive loans against the value of his Tesla stock, which has been declining in price ever since. And the morale at the company has been falling due to Musk’s constant criticisms of the service and its executives, and the near-certainty that significant layoffs will follow the close of the deal.

On Thursday, both the deal and the company absorbed additional blows.

The deal

The deal now faces challenges on at least three fronts. One is that the Securities and Exchange Commission is now reportedly investigating Musk’s late disclosure of his 9 percent stake in the company, which saved him $143 million at the expense of average investors. (At most, though, this might result in a fine.) Two is that the Federal Trade Commission is now reviewing the deal. (Most don’t expect it to block the sale, though it’s worth noting that as of yesterday Democrats now have a 3-2 majority.)

Three, and maybe most importantly, the deal terms are worse for Musk with each passing day. When the board accepted his offer, the price was at a 38 percent premium to the value of Twitter shares at the time. Since then, almost every tech stock has lost a significant portion of its value. And so while Musk’s offer was based on the idea that Twitter shares were valued around $39, analysts told CNBC they would now be trading “in the 20s” if the company were to remain public.

To give you some sense of how strange this all is: when Musk first offered $54.20 a share, several Twitter shareholders insisted the deal be stopped because the offer price was too low. Last year, after all, the company’s shares had been trading around $73. Now, Musk’s offer has caused the share prices to become inflated relative to their current value, and so people are speculating he will try to abandon the deal because his offer is too high.

Musk is still (mostly) acting as if he is going to go through with his bid. Bloomberg reported that he is now seeking even more investors to join him, with the goal of saving Musk from having to take out a loan against the considerable but declining value of his Tesla shares.

But he could also theoretically change his mind, walk away, and then get the same company for half price in a few months. There might be some legal hoops to jump through — his offer to buy the company is supposed to be binding — but who would really claim to be shocked if he changed his mind?

The company

On Thursday morning, Twitter CEO Parag Agrawal emailed the staff with some news: Kayvon Beykpour, the company’s head of consumer products, and Bruce Falck, its head of revenue products, were leaving the company. “It’s critical to have the right leaders at the right time,” Agrawal said in a memo obtained by Platformer.

He went on to say that the company is pausing most hiring, “except for business critical roles,” and would reduce spending on contractors, consultants, travel, events, marketing, real estate, infrastructure, and other operating costs.

Shortly after the memo went out, Beykpour told the real story on Twitter: he had been fired.

Falck followed up to say that he was fired as well.

Half of Agrawal’s moves here makes sense. It is normal for companies to pause hiring and cut costs in anticipation of a sale, particularly one where layoffs are expected. Agrawal is expected to leave if and when the deal closes; when Musk replaces him, Agrawal is in line for a $39 million payout. His job is to be a lame-duck caretaker of a distressed asset until the paperwork is finalized and Musk can take over.

But no one I spoke to at Twitter today had a solid theory for why Agrawal would push out two of his top lieutenants on his own way out the door — particularly in the case of Beykpour, who is currently on family leave with his first child.