Elon Musk quoted bots when he announced the $ 44 billion takeover of Twitter as “temporarily detained”, but not everyone accepted that explanation.
The world’s richest man tweeted on Friday that he was pausing his offer while he waited for additional information to confirm whether the social media company’s quarterly estimates of its fake accounts were accurate, sending a drop in Twitter shares and raising questions about what exactly Musk meant.
In fact, agreed transactions cannot be legally deferred. Twitter’s lawyers are still working with Musk’s team to complete the deal, said a source familiar with the situation. The billionaire himself said he was still “engaged in the acquisition.”
Some analysts interpret Musk’s maneuver as an attempt to force Twitter to return to the negotiating table to get a cheaper deal as technology stocks cool, or find a way to withdraw.
“Unless Twitter reports grossly erroneous data – which would be a serious security fraud – it could be a way to either negotiate a lower price or withdraw,” said Stefano Bonini, a corporate governance expert at the Stevens Institute of Technology. . “In any case, this shows that we are still a long way from making this deal a reality.”
Social media companies have long been trying to crack down on fake accounts flooding their platforms, bombarding users with unsolicited commercial messages, content or requests. In addition to financially motivated spam and fraud, fake accounts can increase the number of followers, creating the impression of false popularity or be used in disinformation campaigns.
Musk’s tweet suggests that Twitter – which has long struggled with complaints about its bots – has more fake accounts than it reveals. He highlighted news citing a recent assessment by the company that “less than 5 percent” of Twitter users are fake and spam accounts.
The figure also appears in every quarterly revenue submission in 2014, although Twitter warns that it is only approximate and “may be higher.” This has also been challenged by some researchers – a 2017 study shows a total of between 9 and 15 percent.
Twitter periodically cleans up spam accounts and invests in systems to capture and eradicate others. But he also rejected the researchers’ assessments and suggested that the concern was exaggerated.
For Musk, who has more than 92 million followers on the platform and is regularly targeted by cryptocurrency fraudsters, the problem is a problem.
“If I had dogecoin for every crypto fraud I saw, we would have 100 billion dogecoins,” Musk said in an interview last month. He said one of his priorities for the platform would be “to defeat spam bots or die trying.”
Brian Wiser, global president of business intelligence at GroupM, said: “In general, we need to be skeptical about the number of users because there is a need to evaluate and there is not enough evidence of whether you need to be human.”
He noted that Twitter is more encouraging to use nicknames than Facebook, owned by Meta, which is trying to link accounts to real user identities. “But it seems insincere to suddenly assume that this is something new,” Wieser added.
Cheaper deal?
Although the bot dilemma is not new, one thing has changed since Musk first launched his offer: technology stocks are falling. After Tesla’s chief executive made an offer to buy Twitter on April 14, the Nasdaq fell nearly 18 percent. The share price of the social media platform is down, but it is ahead of the technology index, mainly thanks to Musk’s proposal.
Nathan Anderson, founder of Hindenburg Research for short sales, said earlier this week that the collapse in technology stocks had given Musk a lever to end the deal to buy Twitter at a lower rating.
“We think Musk keeps all the cards here,” Anderson said. “The board quickly agreed to the deal when conditions were much more favorable and we believe they would make the right decision again when faced with the current reality.
Although few know Musk’s real motives for questioning the deal, several analysts believe it is possible that he will try to get better terms.
“The $ 44 billion cost is huge and could be a strategy to get back to the amount he’s willing to pay to acquire the platform,” said Susanna Streetter, a technical analyst at Hargreaves Lansdown.
Brent Thill, a technical analyst at Jefferies, agreed: “We believe Elon Musk is postponing the deal to negotiate a lower price.
However, once the deal is negotiated, it is very difficult to get the board to accept a lower offer. Delaware courts, which rule on most corporate cases, rarely allow this to happen unless agreed by both parties. The Twitter board would risk being sued if it agreed to a lower price without good reason.
Musk could use what is known as a “substantial adverse change” clause to force Twitter to come to the negotiating table and accept a lower bid. However, the bar for such a clause is quite high. Many buyers tried to use them during the pandemic to reduce the cost of deals negotiated before the Covid-19 pandemic caused chaos in valuations. Few succeed.
One company that did this was LVMH, which caused jeweler Tiffany to reduce her selling price during the pandemic. As part of its strategy, the French luxury group threatened to abandon the deal, claiming that Tiffany had made changes during the pandemic that violated her contract.
Some believe that Musk may try something similar. Sometimes buyers can use new “problems” as a basis for renegotiating the price of a deal – even if Musk is not allowed to do so under contract, the board may think it’s easier to renegotiate than to judge. “Said Ann Lipton, an associate professor of business law and entrepreneurship at Tulane University.
Is Musk looking for a way out?
Another possibility is that Musk just wants to leave. Whether he can do it so easily will probably be a matter for the courts.
Twitter has agreed to a termination fee, which could technically allow Musk to abandon his $ 1 billion takeover. However, the social media company may also sue to force him to close the deal.
Much will depend on the circumstances. Daniel Rubin, a merger and acquisition lawyer at Dechert, the U.S. corporate law firm, said Musk could not simply leave by paying a $ 1 billion termination fee, but could find a way to force Twitter to take money and move on.
“He can always create conditions that will leave Twitter with no meaningful choice, except to terminate and allow him to leave with a fee that limits his liability even for intentional violation [the terms of the deal]. It’s basically a walk to the right, with a few steps in between, “Rubin said.
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Musk secured funding for the deal, but is trying to reduce his $ 6.5 billion margin by inviting wealthy and institutional investors to support his offer with equity. He recently raised $ 7.14 billion in funding from investors, including Oracle co-founder Larry Ellison, cryptocurrency exchange Binance and asset management groups Fidelity, Brookfield and Sequoia Capital. However, he is still looking for more support.
It is unclear whether he is struggling to do so and may see this as a way out of the deal, said a person familiar with the matter.
A longtime deal lawyer said Musk was likely to be forced to complete the buyout of Twitter under the current conditions, noting that Delaware’s state courts were almost universally unfriendly to buyers who wanted to drop the agreements.
“Elon is an incredible card for himself, but he could also be the most uniquely unsympathetic future defendant in a commercial lawsuit in history, including Carl Icahn,” the lawyer said.
Additional reports from Sujeet Indap in New York
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