Elon Musk has got cold feet for planned $44B takeover of Twitter. After tweeting that the deal is temporarily on hold, the Tesla chief has now declared that the deal can’t move forward unless the social media giant can prove that bot or spam accounts make up less than 5 per cent of users on the platform.
“This deal cannot move forward,” Musk said in a tweet.
The whole saga once again brings us back to Musk’s ability to move and shake the market without being substantive on his own words. In 2018, Musk had tweeted that he has funding secured to take Tesla private, but instead, he had to face the wrath of US Securities and Exchange Commission and even pay a fine.
Is Musk walking away from Twitter takeover?
After acquiring a 9.2 per cent stake, Musk declined to join Twitter’s board and then offered to take the company private with his “best and final” offer. At the time of his offer, Musk offered to pay $54.2 per share and valued the company at $43B. After Twitter’s board accepted his offer, the company was valued at $44B and Musk even proved that he has funding secured for the deal.
In order to finance the deal, Musk lined up $46.5B in financing with Musk committing about $21B in equity financing and secured another $25.5B in the form of debt financing through Morgan Stanley Senior Funding and other firms. The debt financing included about $12.5B in loans against his stock in Tesla.
A large swath of Musk’s fortune is tied to Tesla shares and he has been selling some of them to raise capital for this deal. However, with the broader market in a sell-off mode, Tesla’s fortunes have reversed as well. In the past five trading sessions, Tesla has dropped from around $819.03 to $724.37. This decline in share price of Tesla is seen as one of the reasons forcing Musk to walk away from the deal.
With Tesla share price declining, Musk will have to sell more shares than he initially planned to finance this deal. In 2020, Musk announced plans to sell all of his physical possessions, including his many homes. As a result, Tesla is now one of the biggest assets in his arsenal and analysts don’t see Musk selling more than he planned to initially. However, his recent proclamations on Twitter have made an already chaotic deal take a new turn.
Twitter CEO explains spam and gets poop emoji instead
Since first announcing his decision to take Twitter private, analysts and traders have remained sceptical about Musk and his proposed deal. There was always this possibility of Musk either walking away from the deal or getting bored or finding another hobby online. The first signs of Musk not going ahead with this deal came last week when he tweeted the deal is temporarily on hold.
He cited the lack of clarity on the number of spam accounts on the platform as reason for his decision. After signing a non-binding agreement to take Twitter private for $44B, Musk cannot simply put a deal on hold. But Musk does not operate as per market norms and now, he is taking the battle online by butting heads with Twitter CEO Parag Agrawal.
Twitter has consistently disclosed to the SEC that less than 5 per cent of the users on its platform represent bots or spam accounts. Last evening, Agrawal tried to explain the logic behind its methodology via a lengthy thread on Twitter. In the thread, Agrawal said “we are strongly incentivized to detect and remove as much spam as we possibly can” but Musk wasn’t impressed.
💩
— Elon Musk (@elonmusk) May 16, 2022
At one point, he replied to Agrawal with a poop emoji and even asked people to run their own tests. Explaining the methodology, Agrawal said it is not possible to run an external analysis for spam accounts on the platform and the same was communicated to Musk.
Musk and possible securities fraud
The whole saga brings us back to the main question: is Musk still interested in Twitter? He has tweeted to be still committed to the deal but his actions are almost akin to committing securities fraud. For one, his tweet to put the deal on temporary hold has had an adverse effect on Twitter’s share price.
20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher.
— Elon Musk (@elonmusk) May 17, 2022
My offer was based on Twitter’s SEC filings being accurate.
Yesterday, Twitter’s CEO publicly refused to show proof of <5%.
This deal cannot move forward until he does.
Twitter shares fell another 3.2 per cent in pre-market trading after Musk said at a Miami tech conference that he would like to negotiate a deal at a lower price. He also told the audience that fake users makeup at least 20 per cent of all Twitter accounts. One of the things Musk has not done yet is prove “material adverse effect” of these spam accounts on Twitter.
As Matt Levine explained in his Bloomberg column, Twitter could force Elon Musk to court and sue him for backing away from the deal. However, the bigger question is whether Twitter board has the pedigree to face Musk’s online trolling while the case gets argued in a Delaware court. One thing is certain, there is never a lack of entertainment in the world of Elon Musk and this Twitter deal could become the biggest circus yet.
