Elon Musk said on Friday that his planned $44 billion purchase of Twitter is “temporarily on hold” pending details about spam and fake accounts on the social media platform, another twist amid signs of internal turmoil over the proposed acquisition.
Musk tweeted early Friday that he wanted to identify the amount of spam and fake accounts on the social media platform. He has been outspoken in his desire to clean up Twitter’s problem with “spam bots” that mimic real people, and seemed to question whether Twitter wasn’t reporting them.
But the company has revealed in regulatory filings that estimates for its bot could be low for at least two years, leading some analysts to believe Musk could be raising the issue as a reason to back out of the purchase.
In a tweet, the Tesla billionaire linked to a Reuters story on May 2, citing a Twitter financial file that estimated that fake or spam accounts represented less than five percent of the company’s “monetizable daily active users” in the first quarter.
Still committed to acquisition
“The Twitter deal is temporarily on hold pending details to support the estimate that spam/fake accounts represent less than 5% of users,” Musk wrote in his tweet, indicating he is skeptical that the number of non-authentic accounts is so low.
On Friday, Musk subsequently tweeted that he is “still committed to the acquisition.” Neither Twitter nor Musk responded to requests for comment on Friday.
Musk has had a long flirtation with Twitter that culminated in an April deal to acquire the social platform.
The problem of fake accounts on Twitter is not a secret. In its quarterly filing with the US Securities and Exchange Commission, Twitter itself doubted its bot account count was correct, admitting the estimate may be low.
“In making this determination, we apply significant judgment, so our estimate of fake or spam accounts may not accurately represent the actual number of such accounts, and the actual number of fake or spam accounts may be higher than expected. that we have estimated,” the presentation said. He says.
A review of Twitter’s SEC filings shows that estimating spam bot counts and similar language casting doubt on them has been in Twitter’s quarterly and annual reports for at least two years, long before Musk did. your offer.
Sara Silver, a professor of business journalism and financial communication at Quinnipiac University, said it appears Musk is using the number of spam accounts as a pretext to back out of the deal.
“Claiming that this is why you are putting the deal on hold is not credible,” Silver said. “This is not a new problem for him. It’s not just coming into his awareness now.”
Twitter deal affecting Tesla
Shares of both Twitter and Tesla swung sharply in opposite directions on Friday afternoon: Twitter shares fell nearly nine percent and shares of Tesla, which Musk had proposed using to help fund the Twitter deal, rose. about eight percent.
Shares of Tesla have fallen since it was revealed that the social platform had become a target of Musk.
Shares of Tesla have lost a quarter of their value in the past month and have fallen from around $1,150 in early April, when Musk confirmed he had taken a large stake in Twitter, to $785.25 on Friday.
“It has become much more expensive for him to buy this company using his Tesla stock,” Silver said.
WATCH | Elon Musk Says $44 Billion Twitter Deal Is ‘Temporarily On Hold’:
Musk’s net worth, estimated by Forbes earlier this week at $240 billion, has fallen to $223 billion as of Friday.
Tesla stock may also have benefited from Twitter bot accounts over the years. A University of Maryland researcher recently concluded that such bots have been used to generate hundreds of thousands of positive tweets about Tesla, potentially boosting its stock in years when it was under pressure.
Neither Tesla nor its supporters have taken responsibility for those bots.
Investors have had to weigh Musk’s legal troubles as well as the possibility that the Twitter acquisition could be a distraction from the management of the world’s most valuable automaker.
The proposed deal continued to put pressure on Tesla shares, which had already fallen 16 percent this week. The sharp jump in Tesla’s share price before the opening bell on Friday signaled growing doubts that the Twitter takeover will go through.
Musk has already sold more than $8 billion worth of Tesla stock to finance the purchase.
Originally, Musk had agreed to borrow $12.5 billion in Tesla stock as collateral to buy Twitter. He would also borrow $13 billion from banks and put up $21 billion in Tesla stock.
Last week, Musk bolstered the equity stake in his Twitter offering with commitments of more than $7 billion from a diverse group of investors, including Silicon Valley bigwigs like Oracle co-founder Larry Ellison.
The money from the new investors reduces the amount borrowed on the value of Tesla shares to $6.25 billion, according to the filing.
Musk’s story of driving markets into a frenzy
Wedbush analyst Dan Ives, who follows both Tesla and Twitter, said Musk’s “bizarre” tweet will lead Wall Street to think the deal is likely falling apart, that Musk is trying to negotiate a lower price or he is simply walking away from the deal. with a fine of one billion US dollars.
“Many will see this as Musk using these Twitter archiving/spamming accounts. [excuse] as a way out of this deal in a wildly changing market,” Ives wrote.
Musk agreed to buy Twitter for US$54.20 per share. As of Friday afternoon, the price of a share is hovering around $40.
He added that Musk’s use of Twitter, rather than a financial presentation, to make the announcement was troubling and “sends this whole deal into a circus sideshow with a lot of questions and no concrete answers on the way forward.”
Using Twitter to make a major announcement that moved the share prices of two companies could be problematic for Musk. Under a 2018 securities fraud settlement with the SEC, Musk must obtain approval from a Tesla attorney before tweeting anything that could influence the company’s stock price. It was unclear whether Musk got such approval for his tweet on Friday at 5:44 a.m. EDT announcing the suspension of the Twitter deal.
The SEC has already issued subpoenas to Tesla and Musk for a tweet last fall asking followers if he should sell Tesla stock.
A court filing says Musk did not get the required prior approval. Last month, a federal judge in New York rejected Musk’s attempt to nullify the agreement on the grounds that he signed it under duress and that it violates his right to free speech. The judge also upheld Musk’s subpoena.
The dispute stemmed from an October 2018 agreement with the SEC that Musk signed. He and Tesla each agreed to pay $20 million in civil penalties for Musk’s tweets about having the “funds secured” to take Tesla private at $420 per share. But the funding was not aligned and Tesla remains a public company.
On Thursday, Twitter fired two of its top managers. Twitter said the company is pausing most hiring, except for critical roles, and is “reducing non-labor costs to ensure we are responsible and efficient.”
In a memo sent to employees and confirmed by Twitter, CEO Parag Agrawal said the company has missed growth and revenue milestones after the company began investing “aggressively” to expand its user base and revenue.