Musk says Twitter put $44 billion deal on hold over fake account data

© Reuters. FILE PHOTO: Elon Musk’s Twitter profile appears on a smartphone emblazoned with the Twitter logo in this image taken on April 28, 2022. REUTERS/Dado Ruvic/Illustration

by Greg Roumeliotis and Sheila Dang

(Reuters) – Elon Musk tweeted on Friday that his $44 billion cash deal twitter company (NYSE: ) is “on hold” while it waits for the social media company to provide data on the proportion of its fake accounts.

Shares of Twitter were initially down more than 20% in premarket trading, but in the electric car market Tesla (NASDAQ: ) CEO Elon Musk said in a second tweet that he remains committed to the issue. After the deal, they regained some lost ground.

Shares fell 9.6% to $40.71 on Friday, a steep discount to the $54.20 per share offer price.

Musk, the world’s richest man, decided to drop his due diligence when he agreed to buy Twitter on April 25 in an effort to get the San Francisco-based company to accept his “best and final offer.” That might make it harder for him to argue that Twitter had misled him in some way.

Since Musk signed the deal to buy Twitter, tech stocks have tumbled as investors worry about inflation and a potential economic slowdown.

The spread between the offer price and the value of Twitter shares has widened in recent days, implying a less than 50 percent chance of completion, as investors speculate that a downturn will prompt Musk to leave or seek a lower price.

“The Twitter deal is on hold for now. Details in favor of calculating spam/fake accounts do represent less than 5% of users,” Musk told his more than 92 million Twitter followers.

“To find out, my team will randomly sample 100 followers,” Musk tweeted at https://twitter.com/elonmusk/status/1525291586669531137, inviting others to repeat the process And “see what they found.”

“If we collectively try to find out the percentage of bots/repeat users, we might crowdsource a good answer.”

Musk tweeted that he was “relying on the accuracy of Twitter’s public documents” in response to a follower who asked why he hadn’t thought of that before offering to buy the company.

Under the terms of Musk’s contract with Twitter, he has the right to ask the company for information about its operations after the deal is signed.

But it’s designed to help him prepare for owning Twitter, not due diligence and renegotiation.

Twitter has no immediate plans to take action against Musk because of Musk’s comments, the people said.

The company viewed the comment as disparaging and a violation of the terms of their deal’s contract, the source added, but was encouraged by Musk’s subsequent tweet that he would work on the acquisition.

As part of the deal planning process, Musk came to Twitter’s offices on May 6 for a meeting, a Twitter spokesman said.

Twitter CEO Parag Agrawal also tweeted: “While I expect the deal to close, we need to prepare for all scenarios.” On Thursday, Agrawal announced a leadership change and a hiring freeze.

Real or fake?

Spam or fake accounts are designed to manipulate or artificially promote activity on services such as Twitter. Some people give the impression that something or someone is more popular than it is.

Musk tweeted a Reuters report 10 days ago citing fake account data. Twitter said the numbers were estimates and the actual numbers could be higher.

The estimated number of spam accounts on the microblogging site has remained steady below 5 percent since 2013, according to regulatory filings by Twitter, prompting some analysts to question why Musk is raising it now.

“This 5% metric has been around for a while. He’s clearly seen it … so it’s likely to be more of a lower price strategy,” analyst Susannah Streeter said. Hargreaves Lansdowne (LON:).

Representatives for Musk did not immediately respond to Reuters’ request for comment.

Tesla shares rose 5% on Friday. Since Musk disclosed his Twitter holdings on April 4, the shares have lost about a quarter of their value, amid concerns that he will be distracted as Tesla CEO and that he may have to sell more More Tesla stock to fund the deal.

After a market downturn, there is plenty of precedent for a possible renegotiation of prices. When the COVID-19 pandemic struck in 2020 and sent shockwaves through the global economy, several companies repriced their agreed acquisitions.

For example, French retailer LVMH has threatened to abandon its partnership with Tiffany & Co. (New York Stock Exchange:). The U.S. jewelry retailer agreed to cut prices by $425 million to $15.8 billion.

Acquirers seeking an exit have sometimes resorted to “material adverse effect” clauses in their merger agreements, saying the target company has been severely damaged.

But like many recent mergers, the wording in the Twitter deal doesn’t allow Musk to leave because of deteriorating business conditions, such as declining ad demand or Twitter’s plummeting stock price.

If Musk doesn’t close the deal, he’s contractually obligated to pay Twitter a $1 billion breakup fee. But the contract also contained a “performance-specific” clause that judges could invoke to force Musk to close the deal.

In practice, acquirers who lose a particular performance case are almost never forced to complete an acquisition, usually negotiating a monetary settlement with the target.

beat the robot

Musk has said that if he buys Twitter, he “will beat the spam bots or die,” blaming the company’s reliance on advertising for its proliferation of spam bots.

He was also critical of Twitter’s moderation policy and said he wanted Twitter’s algorithm to prioritize public tweets.

This week, Musk said he would rescind Twitter’s ban on former U.S. President Donald Trump when he bought the social media platform, signaling his intention to cut back on moderation.

Trump, who founded a rival social media app called Truth Social, made his comments on his platform on Friday.

“There’s no way Elon Musk could have bought Twitter for such a ridiculous price, especially since realizing it’s a company based largely on bots or spam accounts,” Trump wrote in a post, adding that his The website is much better.

(Additional reporting by Nivedita Balu and Shivani Tanna in Bengaluru, Ken Li in New York and Katie Paul in San Francisco; Writing by Anna Driver, Editing by Alexander Smith, Nick Zieminski, Alistair Bell and Himani Sarkar)



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