Elon Musk attends the 2022 Met Gala to celebrate “In America: An Anthology of Fashion” at the Metropolitan Museum of Art on May 2, 2022 in New York City.
Dimitrios Kambouris | Getty Images
Elon Musk’s Twitter was sued again this week in California for allegedly not paying vendors.
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 for breach of contract and non-payment since Musk took over about 4 months ago.
The Tesla and CEO of SpaceX led the $44 billion buyout of Twitter that closed around October 27, 2022. He sold billions of dollars worth of Tesla stock and took on about $13 billion in Twitter debt when he became the sole director, new owner and CEO director there.
Since then, Musk’s social media business has been sued for non-payment by the Writer and at least five others:
- Its owner in San Francisco, Columbia REIT
- Private jet transportation services provider, Private Jet Services Group
- Event planning and production company, Blueprint Studios Trends
- M&A consulting firm Innisfree M&A
- And Analysis Group, a company that provided litigation-related consulting services to Twitter and its attorney before Musk bought the company.
The legal and public records database, PlainSite, is tracking these litigation as they arise.
Twitter’s alleged failure to pay rent to Columbia REIT led to the real estate company defaulting on loans for buildings, including where Musk rents office space at 650 California Street in San Francisco, Luck first reported.
Twitter is also said to be lagging in payments to larger companies. According to Platformer report on Thursday Twitter abruptly cut off employees’ access to Slack this week after it failed to pay a bill. Slack is a workplace chat and collaboration platform that it owns Salesforce.
In the latest complaint, filed in California Superior Court in San Francisco, Writer says Twitter failed to pay a bill for the relatively modest sum of $113,856.
Formerly known as Qordoba, Writer describes itself as an artificial intelligence company that helps employees create content that meets their employer’s standards for branding, copy and other style guidelines.
The writer did not immediately respond to a request for comment on the matter.
Twitter’s vice president of product, trust and security Ella Irwin told CNBC via email: “We do not comment on ongoing litigation or various speculations regarding Twitter’s financial health.”
Musk has publicly bemoaned and downplayed Twitter’s financial woes. This week, wrote on Twitter, “Say what you will about me but I acquired the largest non profit organization in the world for $44 billion lol.
red flags
According to Boston College finance professor Edith Hotchkiss, non-payment disputes like these are not common after a leveraged buyout. In an email to CNBC, she said they are “more typical of companies that are in a very short period of time from filing for bankruptcy.”
Vanderbilt University finance professor Josh T. White, a former SEC economist, agreed that the moves were unusual and said lawsuits over non-payment of suppliers could be the result of “an improper and aggressive capital structure.”
Musk’s Twitter deal was financed with approximately 30% debt and 70% equity at closing.
White explained that the high level of debt is aggressive for a company with volatile and sometimes even negative free cash flow like Twitter has been for the past three years.
Leveraged buyouts more often target companies with stable cash flows that can be used to pay down debt and create a tax shield by deducting interest expenses, he wrote.
“Using more debt and less equity reduces the amount of liquid cash that Musk and his co-equity investors had to contribute to closing, potentially generating a higher internal rate of return if the company turns out to be profitable,” White said.
Meanwhile, even after aggressive cost-cutting measures, incl widespread layoffs and cuts to benefits and infrastructure, Twitter is likely still struggling to generate positive free cash flow to pay its liabilities, White suggested. “Non-payment and breach of contract are certainly red flags that the company is likely to be in financial jeopardy.”
