Elon Musk attends the 2022 Met Gala Celebrating ‘In America: An Anthology of Fashion’ at The Metropolitan Museum of Art on May 02, 2022 in New York City.
Dimitrios Kambouris | Getty Images
Elon Musk’s Twitter account was sued again in California this week for alleged non-payment by a supplier.
The latest complaint comes from a tech startup called Writer, Inc., and it’s at least the sixth company to sue Twitter in the US for breach of contract and nonpayment since Musk took over about 4 months.
THE You’re here and the SpaceX CEO led a $44 billion takeover of Twitter, which closed around Oct. 27, 2022. He sold billions of dollars of his Tesla stock and took on about $13 billion in debt dollars on Twitter as he became sole director, new owner and CEO. there.
Since then, Musk’s social media business has been sued for nonpayment by Writer and at least five others:
- Its owner in San Francisco, Columbia REIT
- A private jet service provider, Private Jet Services Group
- An event planning and production company, Blueprint Studios Trends
- M&A advisory firm, Innisfree M&A
- And Analysis Group, a company that provided litigation advisory services to Twitter and its attorney before Musk bought the company.
A legal and public records database, PlainSite, is follow these lawsuits as they arise.
Twitter’s alleged non-payment of rent to Columbia REIT led the real estate company to default on loans for buildings, including where Musk rents office space at 650 California Street in San Francisco, Fortune reported for the first time.
Twitter has also reportedly fallen behind on payments to large companies. According to a Platformer report On Thursday, Twitter suddenly cut employees’ access to Slack this week after they failed to pay a bill. Slack is the workplace discussion and collaboration platform owned by Selling power.
In the most recent lawsuit, filed in California Superior Court in San Francisco, Writer claims Twitter failed to pay a bill for the relatively modest $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 safety, Ella Irwin, told CNBC via email, “We do not comment on ongoing litigation or various speculation regarding Twitter’s financial health.”
Musk has publicly complained and shed light on Twitter’s financial troubles. This week, he wrote on Twitter, “Say what you want about me but I acquired the largest nonprofit in the world for $44 billion lol.”
Nonpayment disputes like these are not common after a leveraged buyout, according to Edith Hotchkiss, professor of finance at Boston College. She said in an email to CNBC that they are “more typical of companies that are in a very short bankruptcy filing window.”
Vanderbilt University finance professor Josh T. White, a former SEC economist, agreed the moves were unusual and said disputes over nonpayment of suppliers could stem from a “capital structure incorrect and aggressive”.
Musk’s Twitter deal was funded with approximately 30% debt and 70% equity at closing.
White explained that the high level of debt is aggressive for a company whose free cash flow is volatile and sometimes even negative, as Twitter has experienced over the past three years.
Leveraged buyouts more often target companies whose stable cash flow can be used to pay down debt and generate a tax shield by deducting interest costs, he wrote.
“Using more debt and less equity reduces the amount of liquid cash Musk and his co-investors had to bring to closing, which can potentially generate a higher internal rate of return if the company turns out to be profitable,” White said.
Meanwhile, even after aggressive cost-cutting measures, including widespread layoffs and benefit and infrastructure cuts, Twitter likely still struggles to generate positive free cash flow to pay its obligations, White suggested. “Non-payment and breaches of contract are definitely a red flag that the business is likely in financial trouble.”