Elon Musk, the CEO of Tesla, promised that if he took over Twitter, he would be able to do rid of the annoying “spambots.”
He’s now claiming — without providing any evidence — that there are simply too many of those automated accounts for the $44 billion (A$61 billion) agreement to go through.
Experts say Musk’s abrupt pivot makes little sense unless he’s trying to scuttle or renegotiate an arrangement that’s growing increasingly costly for him.
While such tough-talk tactics aren’t unusual in business acquisitions, the manner in which it’s taking place — in a highly visible, somewhat unpredictable conversation on the exact platform Musk wants to buy — is unprecedented.
Musk is, in effect, discussing the future of Twitter on Twitter.
He’s trying to sabotage the transaction by talking it down.”
Musk moved to Twitter early Tuesday to claim that his proposal to buy the company can’t “go forward” unless the company can present public proof that less than 5% of its accounts are fraudulent or spam.
That came after a Friday tweet stating that the purchase was on hold pending further bot specifics, prompting a roughly 10% drop in the Twitter stock, and Monday statements at a Miami conference implying that he sought a cheaper price for the firm.
Experts believe Musk can’t put the transaction on hold unilaterally, but that hasn’t prevented him from acting as if he can.
He could be liable for a $1 billion breakup fee if he walks away.
Musk also spent much of Monday arguing with Twitter CEO Parag Agrawal, who explained his company’s bot-fighting efforts and how it has repeatedly assessed that less than 5% of Twitter accounts are phony in a series of tweets.
Twitter has been revealing this statement to the US Securities and Exchange Commission for years, while simultaneously warning that its estimate may be too low.
“20 percent fake/spam accounts, while four times what Twitter claims, could be considerably more,” Musk stated in a tweet on Tuesday. My offer was predicated on the accuracy of Twitter’s SEC filings.”
He went on to say that Twitter’s CEO openly refused to present proof of the 5% figure. Until he does, the agreement cannot move forward.
Quinn stated that such terminology makes no sense.
The disclosures he’s upset about are the same ones the corporation has been filing with the SEC for a long time. According to Quinn, there’s nothing new here.
The corporation provided him the opportunity to conduct due diligence and kick the tires and look around prior to the transaction. No, I don’t want to see any more, he said, waiving due diligence.
Twitter was unavailable for comment.
It’s not uncommon for people to have second thoughts about mergers.
It can lead to prospective purchasers looking for different conditions that would allow them to get out of a transaction or offer to price.
The COVID-19 epidemic was one of the factors that drove LVMH, the parent firm of Louis Vuitton and other fashion and wine brands, to abandon plans to buy Tiffany & Co. in the United States in 2020.
Tiffany sued to enforce the agreement, and LVMH retaliated.
Finally, the world-famous jeweler agreed to a somewhat lower acquisition price.
The Twitter selling agreement gives Musk the option to back out if the company has a “material unfavorable effect.”
This is defined as a shift that has a negative influence on Twitter’s business or financial situation.
Musk might allege that Twitter misled him about the number of spambots, according to Chester Spatt, a finance professor at Carnegie Mellon University and a former SEC chief economist.
Even if the justification isn’t true, it can be used as a bargaining chip with a corporate board looking to sell the business.
A major adverse change is often the key to your capacity to renegotiate a merger arrangement, according to Spatt.
Before Musk announced his bid, Twitter shares had fallen below their trading price.
Tesla stock has also fallen since the Twitter proposal, limiting Musk’s ability to acquire funds for the acquisition.
According to Spatt, it’s reasonable for the buyer to desire to get a better price.
Twitter might go to court and argue that the sale deal is still in effect, but it would cost the firm a lot of money in legal bills, according to Spatt.
The SEC will almost certainly investigate Musk’s tweets in their entirety, looking for any false or misleading remarks, according to Spatt.
He stated that the SEC does not want to witness market manipulation.
Their job is to make sure that investors are getting a good bargain and that the information available is correct.
Musk, on the other hand, has made his views in the open, and while he may be negotiating in that manner, the SEC, according to Spratt, is more concerned about hidden components of a sale.
Musk, as one of Twitter’s most frequent celebrity users, has long been plagued by bogus accounts using his name and likeness to promote cryptocurrency frauds.
And he appears to believe it’s a problem for the majority of Twitter users, as well as marketers who buy advertisements on the platform based on how many genuine people they expect to view them.
He tweeted Tuesday that Twitter says that 95% of daily active users are authentic, unique persons. Has anyone had a similar experience?
Musk claimed that at least 20% of Twitter’s 229 million accounts are spambots during a Miami technology conference on Monday, a figure he said was on the low end of his estimation.
Musk delivered the strongest suggestion yet that he would like to pay less for Twitter than the $44 billion he promised to last month at the same All In Summit.
Wedbush Securities analyst Dan Ives, who covers both Twitter and Tesla, said in a research note that the chances of a merger getting done aren’t looking good right now.
He believes Musk has a “60%+ likelihood” of walking away from the contract and paying the $1 billion breakup fee.
On April 14, Musk made his offer to buy Twitter for $54.20 per share public.
Twitter shares finished at $38.32 on Tuesday, up 2.5 percent.
Musk put up part of his Tesla stock as collateral for the sale, which has dropped by approximately a third since the announcement.
In a series of tweets on Monday, Agrawal admitted that Twitter’s bot detection isn’t perfect.
He claimed that the corporation makes an estimate of less than 5% spam per quarter.
The estimate, according to Agrawal, is based on repeated human inspections of thousands of accounts picked at random and consistently over time.
He remarked that the last four quarters’ estimates were all significantly below 5%.
The estimated error margins offer us confidence in our quarterly public announcements.
For at least the last two years, Twitter has included the sub 5% projection in its quarterly SEC filings, far before Musk’s April bid.
During the same time period, Twitter voiced skepticism about its bot count, admitting that the estimate could be low.