The fact that Musk made the point of having secured funding for the biggest corporate buy out in history (a Tesla buyout would far outstrip the current record, $32 billion deal to buy electric utility TXU) altered the tweet from a mere comment to a fundamentally market moving corporate announcement. The difference between the two is while one is considered an offhand comment by a grumbling CEO, the other is one that investors and regulators alike should be listening and acting upon.
Business leaders and policymakers alike who consider using Twitter as a key platform to communicate with external audiences should be cautious. Traditional methods of communication, such as RNS announcements for listed companies, are signed off by all relevant parties to ensure they meet regulatory and legal requirements.
However, news reports suggest one of the parties now advising on the “Tesla deal”, Silver Lake, was unaware of Musk’s plans when they were announced last week, according to a person familiar with the situation. This could be used as evidence in the potential law suits now starting to rack up against both Musk and Tesla. Complainant Kalman Isaacs, for example, alleges the announcement was aimed at “completely decimating” short-sellers. Musk and Tesla will now be under the spotlight of both regulators as well as the judiciary, no doubt an uncomfortable position for a CEO to be in.
Communicating strategic business decisions via Twitter is not a new phenomenon. In 2012, Netflix’s CEO tweeted and forced the SEC to create the ‘Reed Hastings Rule’ in which the SEC said companies could make market moving announcements on Twitter so long as they give investors adequate warning.
Former SEC Chairman, Harvey Pitt stated that the SEC should examine the facts and intent behind the Tesla tweets to assess if he was guilty of market manipulation. US authorities are already said to be looking into Musk’s Twitter activity, with some suggesting that he may have contravened securities laws put in place to prevent market manipulation.
Musk has made his distaste for investors taking a short position on Tesla stock very clear in the past. Some estimates have suggested that short sellers lost $1.3bn as a result of the upwards move in the share price. Whatever the outcome of Musk’s plan to take Tesla private, it is clear that the use of Twitter to convey strategically important business decisions is one that shouldn’t be taken lightly and should be done with the care and due diligence that companies ascribe to any other regulatory announcements. Undoubtedly Twitter is a useful tool, however those using it must adhere to a procedure and agreed strategy. Those who don’t could leave corporations and CEOs open to lawsuits and regulatory action.