The billionaire first sent out a tweet saying the $44 billion deal is on hold until he receives more information on the proportion of fake accounts on the social media site, which has sends shares of Twitter down as much as 25% in premarket trading.
Hours later, he sent another tweet saying he was “still committed” to the deal. Twitter shares recouped some of their losses and were down 11% at 9:45 a.m. in New York.
Musk said he was awaiting details on a recent filing from Twitter that claimed fake accounts on the social media platform contributed to less than 5% of its users.
Twitter said in its latest quarterly results “the average fake or spam accounts during the first quarter of 2022 represented less than 5% of our monthly daily active users during the quarter.” However, Twitter said it applied “significant judgment” to its latest estimate, and the actual number may be higher.
The fight against fake accounts has been a cornerstone of Musk’s attempt to reform Twitter. In a statement announcing his agreement to buy the company last month, he revealed he wanted to defeat spambots, authenticate all humans and make his algorithms open source. Musk also said he would like to make the platform a bastion of free speech, removing the content moderation railings.
Bots are currently allowed on Twitter, although according to company policy, these accounts are supposed to indicate that they are automated. The platform even launched a label for “good” bots, like @tinycarebot, an account that tweets self-care reminders. Spammers, however, are not allowed and the company has policies to combat them.
Always committed to acquiring
— Elon Musk (@elonmusk) 1652442606000
Doubts have been growing in recent days that Musk would be able to pull off his acquisition of Twitter, and that the entrepreneur might consider lowering his bid price for the microblogging site.
The whole transaction was a frenetic and non-traditional affair, widely played on Twitter. Musk went from being a prolific “just” user to revealing a more than 9% stake in the company and then launching an unsolicited takeover bid — without detailed financing plans — within weeks.
It all happened at breakneck speed, in part because Musk backed away from examining Twitter’s finances beyond what was publicly available.
“There will also be questions raised as to whether fake accounts are the real reason for this delaying tactic,” said Susannah Streeter, principal investment and market analyst at Hargreaves Lansdown, “given that promoting freedom of expression rather than focusing on wealth creation seemed to be his primary motivation for the takeover The $44 billion price tag is huge, and it may be a strategy to get back at how much he’s willing to pay to acquire the platform.
The proposed buyout includes a $1 billion severance fee for each party, which Musk will have to pay if he ends the deal or fails to provide acquisition financing as promised. It’s unclear whether an update from Twitter on the number of fake accounts – if they’re materially above 5% – would trigger a so-called material adverse effect clause, freeing Musk from a break fee.
The spread on the deal, which gives an indication of how well Wall Street thinks the takeover will be completed, swelled further on Thursday to $9.11 from $8.11 in the previous session. It was the highest level since the billionaire launched his bid last month to buy Twitter for $54.20 – and double what it was last week when he announced a funding pledge approximately $7.1 billion.
Musk’s latest tweets landed just hours after news broke that Twitter was freezing hiring as part of cost-cutting efforts ahead of the deal. Two of Twitter’s top executives are also leaving. Kayvon Beykpour, head of consumer products, and Bruce Falck, head of revenue products, were both asked to leave the company by chief executive Parag Agrawal, the two executives said in separate public messages.
The changes reflect the current state of Twitter’s limbo as it awaits a new owner. Hindenburg Research LLC, an investment research firm that focuses on activist short selling, said on Monday it saw a “significant risk” that Musk’s proposed bid could be repriced lower.
Analysts cited the ongoing slump in tech stocks, Twitter’s weak first-quarter results, including a multi-year user count restatement, and the prospect that Musk will sell his 9% stake if the deal is done. does not materialize.
“It’s probably aimed at negotiating a deal that’s 15-20% cheaper and closer to rival Snap’s market capitalization. In a $44 billion deal, Twitter’s enterprise value per daily active user of $200 is well above Snap’s $115-120. The transaction could become more palatable to private equity if there was no margin lending,” said Mandeep Singh, senior technology industry analyst at Bloomberg Intelligence.
Twitter employees have been on an emotional roller coaster for weeks. An employee said Friday that he felt like working in a circus and that for the first time he was considering changing jobs.
Doubts about the extent of spam bots on Twitter’s platform aside, the richest person in the world is still working to get the money to close the deal. Musk has been in talks with investors to raise enough equity and senior financing to eliminate the need for any margin lending tied to his Tesla stock, according to people familiar with the matter.
He recently disclosed $7.1 billion in equity commitments from investors including Larry Ellison, Sequoia Capital, Qatar Holding and Saudi Prince Alwaleed bin Talal, the latter adding his Twitter stock to the deal.
“Musk never had the full funding – we know that from his constant attempts to get financial backing – but he also held all the cards,” said Neil Campling, head of TMT research at Mirabaud Equity Research. “Twitter’s board has been held hostage and has only themselves to blame for this mess. No other buyers will emerge – if Musk decides he’s still interested, he can set his price and it won’t be higher.
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