Elon Musk’s Twitter was again sued in California this week for failing to pay vendors.
The latest complaint comes from a tech startup called Writer, Inc., making it at least the sixth company to sue Twitter in the United States for breach of contract and non-payment since Musk took over about four months ago.
of Tesla And SpaceX’s CEO led the $44 billion acquisition of Twitter, which closed on October 27, 2022. He sold billions of dollars worth of Tesla stock, assumed about $13 billion in debt on Twitter, and became sole director, new owner, and CEO. There.
Since then, Musk’s social media venture has been sued by Writer and at least five others for nonpayment.
- San Francisco Landlord Columbia REIT
- Private Jet Services Group, Private Jet Transportation Service Provider
- Event planning and production company Blueprint Studios Trends
- M&A consulting company Innisfree M&A
- The analytics group provided litigation-related consulting services to Twitter and its attorneys prior to Musk’s acquisition of the company.
Plansite.org, a database of legal and public records, track these in the event of a lawsuit.
Twitter’s allegations of rent arrears on Columbia REIT have led the real estate firm to default on loans on buildings, including where Musk rents office space at 650 California Street in San Francisco. I was. luck reported first.
Twitter is also said to be behind on payments to big companies. According to the platformer’s report On Thursday, Twitter abruptly cut off employee access to Slack this week after failing to pay bills. Slack is a workplace chat and collaboration platform owned by Salesforce.com.
In the latest complaint filed in California Superior Court in San Francisco, Writer says Twitter failed to pay its relatively modest bill of $113,856.
Writer, formerly known as Qordoba, bills itself as an AI company that helps employees create content that meets employers’ standards for branding, copy, and other style guidelines.
The writer did not immediately respond to a request for comment on this matter.
Ella Irwin, Twitter’s vice president of products, trust and safety, told CNBC in an email.
Musk has publicly complained and downplayed Twitter’s financial woes. this week, he wrote on twitter, “Whatever they say about me, I bought the world’s largest nonprofit for $44 billion (laughs).”
red flag
Such nonpayment disputes are not common after leveraged buyouts, according to Boston College professor Edith Hotchkiss. In an email to CNBC, she said they are “typical of companies that are within a very short window of filing for bankruptcy.”
Josh T. White, a professor of finance at Vanderbilt University and a former SEC economist, agreed the move was unusual, saying that lawsuits over vendor nonpayments were “inaccurate and aggressive capitalism.” said that it may be due to the structure.
Musk’s Twitter deal closed at about 30% debt and 70% equity.
White explained that high debt levels are aggressive for companies with volatile and sometimes even negative free cash flow, as Twitter has experienced over the past three years.
Leveraged buyouts are more often targeted at companies with stable cash flows, which can be used to service debt and create a tax shield by deducting interest expense. he writes.
“By adding more debt and less equity, we could reduce the amount of liquid cash that Mr. Musk and his co-investors had to contribute at the time of closing, and if the company could turn a profit,” White said. , may generate a higher internal rate of return.”
On the other hand, even after taking aggressive cost-cutting measures, White believes Twitter is still struggling to generate positive free cash flow to pay its debts due to widespread layoffs, benefits and infrastructure cuts. “Nonpayment and breach of contract are certainly red flags that the company is likely to be in financial trouble.”