Elon Musk sowed new chaos in the market over his takeover bid for Twitter Inc. on Friday, first claiming his offer was “temporarily on hold” and then insisting he was “still committed” to the deal, sending the social media giant into a tailspin.
The billionaire initially sent out an early tweet saying the $44 billion deal is pending until he receives more information about the share of fake accounts on the social media site, which caused Twitter shares to tumble as much as 25% in premarket trading.
A few hours later, he sent out another tweet saying he is “still committed” to the deal. Shares of Twitter made up for some of their losses, falling 11% at 9:45 a.m. in New York.
Musk said he was waiting for details on a recent request from Twitter that fake accounts on the social media platform contributed less than 5% of its users. Twitter said in its latest quarterly results, “that the average of fake or spam accounts in the first quarter of 2022 represented less than 5% of our monthly daily active users during the quarter.”
However, this data point has been part of Twitter’s quarterly returns for nearly a decade. Twitter said it has applied “considerable judgment” to its latest estimate and the true number could be higher.
Fighting fake accounts has been a cornerstone of Musk’s effort to reform Twitter. In a statement announcing his deal to buy the company last month, he revealed that he wanted to beat spam bots, authenticate all people and make his algorithms open source. Musk has also said he wants to make the platform a bastion of free speech, removing the barriers to content moderation.
Bots are currently allowed on Twitter, but the company’s policy requires such accounts to indicate that they are automated. The platform has even launched a label for “good” bots, such as @tinycarebot, an account that tweets self-care reminders. However, spambots are not allowed and the company has policies to combat them.
Twitter deal temporarily on hold pending details to support calculation that spam/fake accounts indeed represent less than 5% of usershttps://t.co/Y2t0QMuuyn
— Elon Musk (@elonmusk) May 13, 2022
In recent days, doubts have grown whether Musk could live up to his takeover of Twitter and whether the entrepreneur might consider lowering his bid price for the microblogging site. The entire transaction was a frenzied and unconventional affair, largely played out on Twitter.
Musk went from “just” a prolific user to revealing a more than 9% stake in the company and then launching an unsolicited takeover offer — with no detailed financing plans — in a matter of weeks. It all came together at breakneck speed in part because Musk waived the opportunity to look at Twitter finances beyond what was publicly available.
“Questions will also arise as to whether fake accounts are the real reason behind this delaying tactic,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, “given that promoting free speech rather than predicament concentrating on wealth creation seemed to be his goal.Primary motivation for the acquisition.The $44 billion price tag is huge, and it could be a strategy to cut back on the amount he’s willing to pay to build the platform. acquire.”
The proposed acquisition includes a $1 billion termination fee for each party, which Musk must pay if he closes the deal or fails to deliver the acquisition financing as promised. It’s unclear whether an update by Twitter on the number of fake accounts — if materially greater than 5% — would lead to a so-called material adverse effect clause, exempting Musk from the termination fee.
The spread on the deal, which provides an indication of how much Wall Street believes the acquisition will complete, rose further Thursday to $9.11, from $8.11 in the previous session. That was the highest level since the billionaire last month made his bid to buy Twitter for $54.20 — and double what it was last week when he announced a funding commitment of about $7.1 billion.
Musk’s latest tweets came just hours after news that Twitter was freezing hiring as part of pre-deal cost cuts. Two of Twitter’s top leaders are also leaving. Kayvon Beykpour, head of consumer product, and Bruce Falck, responsible for sales product, were both asked to leave the company by Chief Executive Officer Parag Agrawal, the two executives said in separate public messages.
The changes reflect Twitter’s current state of uncertainty as it awaits a new owner. Hindenburg Research LLC, an investment research firm focused on activist short-selling, said Monday it sees a “significant risk” of Musk’s proposed offer being repriced lower.
The analysts cited the ongoing slump in tech stocks, Twitter’s own weak first-quarter results, including repeating multi-year user numbers, and the prospect of Musk selling his 9% stake if the deal doesn’t materialize.
What Bloomberg Intelligence says:
“This is likely intended to negotiate a deal that is 15-20% cheaper and closer to Snap’s market cap. In a $44 billion deal, Twitter’s business value per $200 daily active user is much higher than Snap’s $115-$120. The transaction would become more palatable to private equity if there were no margin lending.” — Mandeep Singh, senior BI technology industry analyst
Twitter employees have been on an emotional roller coaster for weeks. An employee said Friday that he felt like working at a circus and that he was first considering changing jobs.
Aside from doubts about the extent of spambots on the Twitter platform, the world’s richest person is still trying to secure the funds to actually close the deal. Musk is in talks with investors to raise enough equity and preferred financing to eliminate the need for a margin loan tied to his Tesla stock, according to those in the know.
He recently announced $7.1 billion in equity pledges from investors including Larry Ellison, Sequoia Capital, Qatar Holding and Saudi Prince Alwaleed bin Talal, with the latter putting his Twitter shares in the deal.
“Musk never had the full funding — we know that from his constant efforts to get funding — but he also held all the cards,” said Neil Campling, head of TMT research at Mirabaud Equity Research. “The Twitter board has been held hostage and has only itself to blame for this mess. No other buyer is coming forward — if Musk decides he’s still interested, he can name his price and it won’t be any higher.”
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)