September 24, 2023

Elon Musk’s Twitter was sued again in California this week for alleged failure to pay a vendor.

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The latest complaint comes from a tech startup called Writer, Inc., and it is at least the sixth company to sue Twitter in the United States over breach of contract and nonpayment since Musk took over about four months ago.

Tesla And the SpaceX CEO led Twitter’s $44 billion buyout, which closes around October 27, 2022. He sold billions of dollars of his Tesla shares and took on some $13 billion in debt from Twitter as he became sole director, the new owner and CEO. There.

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Since then, Musk’s social media venture has been sued by Reiter and at least five others for nonpayment:

  • Its landlord in the San Francisco, Columbia REIT
  • Private Jet Services Group, a private jet transportation service provider
  • Blueprint Studios Trends, an event-planning and production company
  • Innisfree M&A, an M&A consulting firm
  • and Analysys Group, a company that provided litigation-related consulting services to Twitter and its attorneys prior to Musk’s purchase of the company.

PlainSite, a legal and public records database, is keep an eye on Lawsuits as they arise.

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The real estate company is defaulting on loans for buildings in which Musk leases office space at 650 California Street in San Francisco, allegedly due to Twitter not paying rent to Columbia REIT. Luck informed earlier.

Twitter has also reportedly fallen behind in paying big companies. According to a platformer report On Thursday, Twitter abruptly cut off employees’ access to Slack this week after they failed to pay a bill. Slack is a workplace chat and collaboration platform owned by sales force.

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In the latest complaint, filed in the California Superior Court in San Francisco, the author says Twitter failed to pay a bill for the relatively modest sum of $113,856.

Previously known as Cordoba, Writer describes itself as an AI company that helps employees create content that meets their employer’s standards for brand, copy, and other style guidelines.

The author did not immediately respond to a request for comment on the matter.

“We do not comment on pending litigation or various speculations surrounding the financial health of Twitter,” Ella Irwin, Twitter’s vice president of product, trust and safety, told CNBC via e-mail.

Musk publicly complained about and highlighted Twitter’s financial woes. This week, He wrote on Twitter, “Say what you want about me but I just bought the world’s largest non profit for $44B lol.”

red flags

Such nonpayment disputes are not common after leveraged buyouts, according to Boston College finance professor Edith Hotchkiss. She said in an email to CNBC that they are “more typical of companies that are within a very short window of filing for bankruptcy.”

Vanderbilt University finance professor Josh T. White, a former SEC economist, agreed that the moves are unusual, and said litigation over non-payment to sellers could be the result of a “wrong and aggressive capital structure”.

Musk’s Twitter deal was financed with approximately 30% debt and 70% equity at the time of closing.

White explained that the high debt level is aggressive for a company with volatile and sometimes negative free cash flow, such as the one Twitter experienced over the past three years.

Leveraged buyouts more often target companies with stable cash flows that can be used to service debt and generate tax shields by cutting interest expense, they wrote.

“Using more debt and less equity reduces the amount of liquid cash Musk and his equity co-investors have to contribute at closing, which could potentially generate a higher internal rate of return,” White said. Is.”

Meanwhile, even after aggressive cost-cutting measures, including widespread layoffs and cuts on perks and infrastructure, Twitter is still struggling to generate positive free cash flow to pay its obligations, White suggested. Gave. “Non-payment, and contract violations are certainly a red flag that the company is likely to be financially distressed.”