Elon Musk attends the 2022 Met Gala for ‘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 a supplier.
The latest complaint comes from a tech startup called Writer, Inc., and is at least the sixth company to sue Twitter in the United States for breach of contract and nonpayment since Musk took over about 4 months ago.
The Tesla and the SpaceX CEO led a $44 billion buyout of Twitter that closed around October 27, 2022. He sold his Tesla stock for billions of dollars and took on about $13 billion in Twitter debt, becoming the sole director, new owner and CEO there.
Musk’s social media company has since sued Writer and at least five others for nonpayment:
- His landlord in San Francisco, Columbia REIT
- Private jet 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 firm that provided litigation-related consulting services to Twitter and its attorneys before Musk bought the company.
PlainSite’s legal and public records database tracks these lawsuits as they arise.
Twitter’s alleged failure to pay rent to Columbia REIT has caused the real estate company to default on loans for buildings, including where Musk leases office space at 650 California St. in San Francisco, Fortune first reported.
Twitter is also allegedly behind on payments to major companies. Twitter abruptly disabled employees’ access to Slack this week after they failed to pay a bill, Platformer reported Thursday. Slack is a proprietary workplace chat and collaboration platform Sales department.
In the latest complaint, filed in California Superior Court in San Francisco, Writer says Twitter failed to pay a relatively modest $113,856 bill.
Formerly known as Qordoba, Writer describes itself as an AI 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.
Ella Irwin, Twitter’s vice president of product, trust and security, told CNBC via email: “We do not comment on pending litigation or various speculations related to Twitter’s financial condition.”
Musk has publicly shouted and denied Twitter’s financial problems. this week he wrote on Twitter, “Say what you will about me, but I bought the world’s largest non-profit for $44 billion, lol.”
According to Boston College finance professor Edith Hotchkiss, these types of default disputes are not common after foreclosures. She said in an email to CNBC that they are “more typical of companies that are in a very short window before filing for bankruptcy.”
Vanderbilt University finance professor Josh T. White, a former SEC economist, agreed that the moves were unusual and said litigation over failure to pay sellers could be the result of “an improper and aggressive capital structure.”
Musk’s Twitter deal was financed with roughly 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, such as the one Twitter has faced over the past three years.
He wrote that leveraged buyouts are more likely to target companies with stable cash flows that can be used to service debt and create a tax shield by deducting interest expense.
“Using more debt and less equity reduces the amount of liquid cash that Musk and his co-investors would have to contribute at closing, potentially leading to 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 cuts to benefits and infrastructure, Twitter is still likely struggling to generate positive free cash flow to pay its liabilities, White suggests. “Non-payments and breaches of contracts are certainly a signal that a company is probably in financial trouble.”