Elon Musk Puts $44 Billion Twitter Settlement ‘Temporarily On Hold’ Over Fake Account Data

Elon Musk tweeted on Friday that his $44 billion cash deal for Twitter Inc TWTR-N was “temporarily on hold” as he waits for the social media company to provide data on the proportion of his fake accounts.

Shares of Twitter initially fell more than 20 percent in premarket trading, but after Musk, the chief executive of electric car market Tesla Inc, sent a second tweet saying he remained committed to the deal, they rallied back somewhat. of land.

The shares were down 10 percent at $40.50 in morning trading on Friday, a deep discount from the purchase price of $54.20 a share.

Musk, the world’s richest person, decided to forgo due diligence when he agreed to buy Twitter on April 25, in an effort to get the San Francisco-based company to accept his “last and best offer.” This might make it harder for you to argue that Twitter somehow misled you.

Since then, tech stocks have tumbled amid investor concerns about inflation and a potential economic slowdown.

The spread between the offer price and the value of Twitter shares had widened in recent days, implying less than a 50 percent chance of completion, as investors speculated the recession would cause Musk to sell out. withdraw or seek a lower price.

“The Twitter deal is temporarily on hold pending details supporting the estimate that spam/fake accounts represent less than 5 percent of users,” Musk told his more than 92 million Twitter followers.

Twitter isn’t planning any immediate action as a result of Musk’s comment, people familiar with the matter said. The company viewed the remark as derogatory and a violation of the terms of their agreement contract, but Musk encouraged it to later tweet that it was committed to the acquisition, the sources added.

There was no immediate reaction from the investors Musk turned to last week to raise $7.1 billion in funding.

Spam or fake accounts are designed to manipulate or artificially increase activity on services like Twitter. Some create the impression that something or someone is more popular.

Musk tweeted a Reuters story from ten days ago that cited figures from the fake account. Twitter has said that the figures were an estimate and that the actual number may be higher.

The estimated number of spam accounts on the microblogging site has held steady below 5 percent since 2013, according to Twitter regulatory filings, leading some analysts to question why Musk was bringing it up now.

“This 5 percent metric has been out for some time. Clearly I would have seen it by now… So it may well be more part of the strategy to drive the price down,” said Susannah Streeter, an analyst at Hargreaves Lansdown.

Musk’s representatives did not immediately respond to Reuters requests for comment.

Shares of Tesla’s TSLA-Q rose 4 percent on Friday morning. The shares have lost about a quarter of their value since Musk revealed a stake on Twitter on April 4, amid concerns that he will be distracted as Tesla CEO and have to sell more Tesla stock to fund the deal

There are many precedents for a possible price renegotiation after a market downturn. Several companies changed the price of agreed acquisitions when the COVID-19 pandemic broke out in 2020 and caused a global economic shock.

In one case, French retailer LVMH threatened to back out of a deal with Tiffany & Co. The US jewelry retailer agreed to cut the price by $425 million to $15.8 billion.

Acquirers seeking an exit sometimes resort to “material adverse effect” clauses in their merger agreement, arguing that the target company has suffered significant harm.

But the language in the Twitter deal agreement, as in many recent mergers, does not allow Musk to walk away because of a deteriorating business environment, such as a drop in advertising demand or because Twitter stock has plunged.

Musk is contractually obligated to pay Twitter a $1 billion breakup fee if he doesn’t complete the deal, and the language in the deal’s contract appears to limit any damage Twitter may seek from Musk to that level.

But the contract also contains a “specific performance” clause that a judge can cite to force Musk to complete the deal.

In practice, acquirers who lose a specific performance case are rarely forced to complete an acquisition and typically negotiate a monetary settlement with their targets.

“The nature of Musk creating so much uncertainty in a tweet (and not a file) is very concerning to us and to Street and is now sending this entire deal to a circus sideshow with many questions and no concrete answers about the path of this deal. . in the future,” Wedbush analyst Daniel Ives wrote in a note.

Musk has said that if he buys Twitter, he will “defeat spam bots or die trying” and has blamed the company’s reliance on advertising for why it has allowed spam bots to proliferate.

He has also criticized Twitter’s moderation policy, saying he wants Twitter’s algorithm to prioritize tweets to be public and is against the service having too much power for corporations to advertise.

However, Musk is aiming for ad revenue to more than double by 2028, according to slides he presented to investors that were reported by the New York Times.

Ads are expected to account for about 45 percent of Twitter’s total revenue by then, up from nearly all of its current revenue, according to the investor presentation.

Earlier this week, Musk said he would reverse Twitter’s ban against former US President Donald Trump when he buys the social media platform, signaling his intention to reduce moderation.

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