Elon Musk said his $44 billion cash purchase for Twitter Inc (TWTR.N) was “temporarily on pause” while he waits for the social media giant to submit statistics on the percentage of fraudulent accounts.
In premarket trade, Twitter shares plunged more than 20%, although they recovered some ground when Musk, the CEO of electric carmaker Tesla Inc (TSLA.O), published a second tweet suggesting he was still committed to the acquisition.
In lunchtime trading on Friday, the shares were down 9.6% to $40.71, a significant discount from the $54.20 per share purchase price.
Musk, the world’s wealthiest man, agreed to purchase Twitter on April 25 without doing due diligence in order to persuade the San Francisco-based firm to accept his “best and last offer.” This might make it more difficult for him to claim that Twitter deceived him.
Technology equities have plummeted since Musk announced his acquisition of Twitter, owing to investor fears about inflation and a probable economic downturn.
As investors worried that the slump might cause Musk to walk away or seek a cheaper price, the difference between the offer price and the value of Twitter shares has increased in recent days, signifying less than a 50% likelihood of completion. continue reading
“Twitter transaction on hold temporarily seeking details supporting computation that spam/fake accounts constitute fewer than 5% of users,” Musk said to his 92 million Twitter followers.
Musk has the right under the terms of his contract with Twitter to request information on the company’s activities once the transaction is signed. However, this is intended to assist him in preparing for his ownership of Twitter, not to do due diligence or resume discussions.
According to those familiar with the situation, Twitter has no imminent plans to take action against Musk as a consequence of his statement. The firm found the remark demeaning and in breach of the terms of their transaction contract, but was heartened when Musk later tweeted that he was committed to the acquisition, according to the sources.
Musk visited Twitter’s offices on May 6 for a meeting as part of the transaction preparation process, according to a Twitter representative.
The investor Musk contacted last week to finance $7.1 billion in cash for the Twitter transaction had no immediate response.
Spam or fraudulent accounts are created with the intent of manipulating or artificially increasing activity on social media platforms like Twitter. Some people give the idea that something or someone is more popular than it really is.
Musk mentioned the bogus account data in a Reuters piece from 10 days earlier. The statistics were an estimate, according to Twitter, and the true number might be higher.
According to regulatory filings from Twitter, the estimated number of spam accounts on the microblogging site has remained below 5% since 2013, causing some analysts to query why Musk was upping it now.
“This 5% figure has been around for a while. He would have seen it immediately… As a result, it’s possible that it’s part of a price-cutting effort “Hargreaves Lansdown analyst Susannah Streeter said.
Musk’s representatives did not immediately reply to Reuters’ requests for comment.
Tesla’s shares increased by 4% on Friday morning. Since Musk declared a stake in Twitter on April 4, the stock has lost almost a quarter of its value, raising fears that he may become distracted as Tesla’s CEO and that he may have to sell additional Tesla shares to finance the acquisition.
There is plenty of precedence for a possible price renegotiation after a market slump. When the COVID-19 epidemic struck in 2020, some firms renegotiated agreed-upon acquisitions, causing a worldwide economic crisis.
In one case, LVMH (LVMH.PA), a French retailer, threatened to pull out of an agreement with Tiffany & Co. The price of the jewelry retailer in the United States has been reduced by $425 million to $15.8 billion.
Acquirers looking for a way out often use “substantial adverse impact” provisions in their merger agreements, claiming the target firm has been severely harmed.
However, unlike many previous mergers, the Twitter acquisition agreement does not enable Musk to back out due to a worsening economic climate, such as a decline in advertising demand or a drop in Twitter’s stock price.
If Musk does not complete the acquisition, he is liable to pay Twitter a $1 billion breakup fee. However, the contract includes a “particular performance” language that a court may utilize to compel Musk to finish the transaction.
In fact, acquirers that lose a particular performance case are usually never obligated to finish the transaction and instead negotiate a monetary settlement with their targets.
“The notion of Musk generating so much ambiguity in a tweet (rather than a file) is quite disturbing to us and the Street,” Wedbush analyst Daniel Ives said in a note.
DESTROY THE BOTS
Musk has said that if he purchases Twitter, he would “destroy the spambots or die trying,” blaming the company’s dependence on advertising for allowing spam bots to flourish.
He has also been critical of Twitter’s moderation policy, stating that he wants Twitter’s algorithm to emphasize public tweets and that he opposes giving advertisers too much control over the platform.
Musk claimed earlier this week that if he acquires Twitter, he would lift the restriction on former US President Donald Trump, showing his goal to reduce moderation.
On Friday, Trump, who founded a competing social networking program called Truth Social, turned to his site to comment.
“There is no way Elon Musk is going to acquire Twitter for such a ludicrous price,” Trump said in a post, adding that his site is much superior.
Nivedita Balu in Bengaluru and Ken Li in New York contributed to this report. Greg Roumeliotis contributed additional reporting from New York. Anna Driver wrote the piece, while Alexander Smith and Nick Zieminski edited it.