May 13 (Reuters) – Elon Musk tweeted 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 percentage of its fake accounts. .
Twitter shares initially fell more than 20% in pre-market trading, but after Musk, CEO of electric vehicle market Tesla Inc (TSLA.O), sent a second tweet saying he was still committed to the deal, they regained some traction.
The shares fell 9.6% to $40.71 in trading Friday, a steep discount from the buyout price of $54.20 per share.
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Musk, the world’s richest person, decided to forego due diligence when he agreed to buy Twitter on April 25, in an effort to get the San Francisco-based company to accept its “best and last offer.” That might make it hard for him to argue that Twitter misled him in some way.
Since Musk signed his deal to acquire Twitter, technology shares have fallen amid investor concerns about inflation and a possible economic slowdown.
The spread between the bid price and the value of Twitter’s stock has widened in recent days, indicating a less than 50% chance of completion, as investors predicted that the economic downturn would prompt Musk to walk away or seek a lower price. Read more
“The Twitter deal is temporarily on hold pending details backing the account that spam/fake accounts already account for less than 5% of users,” Musk told his more than 92 million Twitter followers.
Under the terms of Musk’s contract with Twitter, he has the right to request information from the company about its operations after the deal is signed. But this is meant to help him prepare for his ownership of Twitter, not conduct due diligence and reopen negotiations.
People familiar with the matter said Twitter had no plans to take immediate action against Musk as a result of Musk’s suspension. The sources added that the company considered the suspension insulting and a breach of the terms of its deal contract, but was then encouraged by Musk when he tweeted that he was committed to the acquisition.
A Twitter spokesperson said Musk came to Twitter’s office for a meeting on May 6 as part of the deal planning process.
Twitter CEO Parag Agrawal was also taken into consideration, tweeting, “While I expect the deal to close, we need to be prepared for all scenarios.” On Thursday, Agrawal announced leadership changes and a hiring freeze. Read more
Real or fake?
Spam or fake accounts are designed to manipulate or artificially boost activity on services like Twitter. Some create the impression that something or someone is more famous than it actually is.
Musk tweeted a story to Reuters 10 days ago that cited the fake account numbers. Twitter said the numbers were estimates and that the actual number could be higher.
The estimated number of spam accounts on the microblogging site has held steady at less than 5% since 2013, according to regulatory filings from Twitter, leading some analysts to question why Musk is raising them now.
“That metric has been off at 5% for some time. It’s clear he’s already seen it…so it might be part of a price-cutting strategy,” said Susanna Streeter, analyst at Hargreaves Lansdowne.
Musk’s representatives did not immediately respond to requests from Reuters for comment.
Tesla stock rose 5% on Friday. Shares have lost about a quarter of their value since Musk revealed a stake in Twitter on April 4, amid fears that he will become distracted as Tesla’s CEO and that he may have to sell more Tesla shares to fund the deal.
There is plenty of precedent for a possible price renegotiation after a market pullback. Several companies re-priced agreed acquisitions when the COVID-19 pandemic broke out in 2020 and triggered a global economic shock.
For example, French retailer LVMH (LVMH.PA) has threatened to pull out of a deal with Tiffany & Co. The US jewelry retailer agreed to cut the price by $425 million to $15.8 billion.
Acquires seeking an exit sometimes resort to the “material adverse effect” clauses in the merger agreement, arguing that the target company has been significantly hurt.
But the language in the Twitter deal agreement, as in many recent mergers, doesn’t allow Musk to get carried away by a deteriorating business environment, such as lower advertising demand or a drop in Twitter stock.
Musk is contractually obligated to pay a $1 billion dismantling fee to Twitter if it does not complete the deal. But the contract also contains a “specific performance” clause that a judge can invoke to compel Musk to complete the deal.
In practice, acquirers who lose a certain performance status are not forced to complete the acquisition and usually negotiate a cash settlement with their targets.
Defeat the robots
Musk said that if he bought Twitter, he would “beat the spam bots or die trying” and blamed the company’s reliance on ads for allowing spam bots to proliferate.
He also criticized Twitter’s moderation policy and said he wanted the Twitter algorithm to prioritize tweets to be public.
Earlier this week, Musk said he would rescind Twitter’s ban on former US President Donald Trump when he buys the social media platform, signaling his intent to cut back on moderation.
Trump, who launched a rival social media app called Truth Social, took to his platform Friday for comment.
“There is no way Elon Musk would buy Twitter at such a high price, especially given the realization that it is a company that relies so much on bot accounts or spam,” Trump wrote in a post, adding that his site is much better.
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Additional reporting by Nivedita Balu in Bengaluru, Ken Lee in New York and Katie Paul in San Francisco.
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