Musk is at war with Twitter over his buyout deal – on Twitter

Tesla CEO Elon Musk promised to take over Twitter would allow him to rid the social media platform of its annoying “spam bots”.

The sharp turnaround by the world’s richest man makes little sense except as a method of closing or renegotiating a deal that is becoming increasingly expensive for Musk, experts say.

Tesla CEO Elon Musk attends the opening of Tesla’s Berlin Brandenburg factory in Gruenheide, Germany, on Tuesday, March 22, 2022. The first European factory in Gr’nheide, designed for 500,000 vehicles per year, is an important pillar of Tesla’s future strategy. (Patrick Pleul/Swimming pool via AP) (AP)

And while such hardball tactics aren’t uncommon in corporate mergers, the way it’s done — in a very public, seemingly erratic conversation on the platform Musk wants to buy — has little precedent.

In fact, Musk is negotiating the future of Twitter… on Twitter.

“That’s the hook he’s trying to grab as the reason for him to potentially walk away or negotiate the price lower,” said Brian Quinn, an associate professor at Boston College.

“He’s torpedoing the deal and trying to bring it down.”

Musk took to Twitter early on Tuesday to say his deal to buy the company can’t “go forward” unless the company provides public evidence that less than 5 percent of accounts on the social media platform are fake or spam.

Elon Musk’s Twitter page can be seen on the screen of a computer in Sausalito, California, on Monday, April 25, 2022. On Monday, Musk reached an agreement to buy Twitter for about $44 billion. (AP Photo/Eric Risberg) (AP)

That followed a tweet from Friday stating that the deal was on hold pending more bot details — which caused Twitter shares to fall nearly 10 percent — and comments Monday at a conference in Miami suggesting he would lower the price for the deal. the company wanted.

Experts say Musk can’t unilaterally cancel the deal, though that doesn’t stop him from pretending he can.

If he walks away, he may be hanging a $1 billion severance fee.

Musk also spent much of Monday back and forth with Twitter CEO Parag Agrawal, who posted a series of tweets explaining his company’s efforts to fight bots and how it has consistently estimated that less than 5 percent of the Twitter accounts is fake.

It’s a message that Twitter has been disclosing to the US Securities and Exchange Commission for years, while also warning that the estimate may be too low.

In his tweet Tuesday, Musk said that “20 percent fake/spam accounts, while four times as many as Twitter claims, could be much higher. My offer was based on the accuracy of Twitter’s SEC filings.”

He added: “Yesterday, Twitter’s CEO publicly refused to show 5 percent evidence. This deal cannot go through until he does.”

That kind of language makes no sense, Quinn said.

“The disclosures he is complaining about are the same disclosures the company has been filing with the SEC for quite some time. There is nothing new here,” Quinn said.

Leading up to the transaction, the company gave him the opportunity to do due diligence and kick up the ties and look around. He waived due diligence and said, ‘No, I don’t want to see more.’ †

Twitter declined to comment.

Getting cold feet about mergers is nothing new.

It sometimes leads to potential buyers looking for changed terms that can take them out of a deal or offer price.

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It was in part the COVID-19 pandemic that prompted French luxury powerhouse LVMH, the parent company of Louis Vuitton and other clothing and wine brands, to say it was abandoning a planned acquisition of US jeweler Tiffany & Co. in 2020.

Tiffany filed a lawsuit to enforce the deal, and LVMH hit back.

In the end, the famous jeweler agreed to a slightly lower buyout price.

The Twitter sale agreement allows Musk to pull out of the deal if there is a “material adverse effect” caused by the company.

It defines that as a change that negatively impacts Twitter’s business or financial conditions.

Chester Spatt, a finance professor at Carnegie Mellon University and a former SEC chief economist, said Musk could argue that Twitter gave him misinformation about the number of spam bots.

Even if the excuse doesn’t hold up, it can serve as a negotiating tactic with the board of directors trying to sell the company.

“In a merger situation, a material adverse change is often key to your ability to renegotiate the deal,” Spatt said.

Twitter shares fell below their trading price before Musk announced his offer.

Twitter has agreed to sell itself to Elon Musk
Twitter has agreed to sell itself to Elon Musk (delivered)

Tesla shares have also fallen since Twitter’s bid, impacting Musk’s ability to raise money for the acquisition.

“It’s natural for the buyer to want to get a better deal,” Spatt said.

Twitter could take Musk to court and claim the sales contract will remain in effect, but that would cost the company hefty legal fees, Spatt said.

The slew of Musk tweets is likely to draw the attention of the SEC, which will likely look into whether any false or misleading statements have been made, Spatt said.

“The SEC doesn’t want to see manipulation of the public markets,” he said.

“Their role is to make sure investors get a fair deal, to make sure the information that’s out there is accurate.”

Musk has made his statements publicly, however, and while he negotiates that way, the SEC is more concerned with hidden aspects of a deal, Spratt said.

The bot issue also reflects a long-term fixation for Musk, who, as one of Twitter’s most active celebrity users, is prone to having fake accounts impersonating his name and likeness to promote cryptocurrency scams.

And he seems to think it’s a problem for most other Twitter users, as well as advertisers who sell ads on the platform based on how many real people they expect to see.

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“Twitter claims that 95 percent of daily active users are real, unique people,” he tweeted Tuesday. “Does anyone have that experience?”

At a technology conference in Miami on Monday, Musk estimated that at least 20 percent of the 229 million Twitter accounts are spam bots, a percentage he said was at the lower end of his rating.

It was at the same All In Summit that Musk gave the strongest hint yet that he would pay less for Twitter than the $44 billion he agreed to last month.

“The odds of a deal eventually getting done don’t look good right now,” Wedbush Securities analyst Dan Ives, who covers both Twitter and Tesla, said in a research note.

He estimated there is a “60 percent + chance” that Musk will eventually walk away from the deal and pay the $1 billion severance payment.

Musk’s offer to buy Twitter for $54.20 a share was made public on April 14.

Twitter shares closed at $38.32 on Tuesday, up 2.5%.

To fund the acquisition, Musk pledged some of its Tesla shares, which have fallen in price by about a third since the deal was announced.

In tweets on Monday, Agrawal acknowledged that Twitter is not perfect at catching bots.

He wrote that the company estimates less than 5 percent spam every quarter.

“Our estimate is based on multiple human reviews from thousands of accounts randomly and consistently sampled over time,” Agrawal wrote.

Estimates for the last four quarters were all well below 5%, he wrote.

“The margins of error on our estimates give us confidence in our public statements every quarter.”

Twitter has quoted the estimate of less than 5 percent in its quarterly filings with the SEC for at least the past two years, well before Musk made his offer in April.

During the same period, Twitter has also expressed uncertainty about the number of bots, admitting that the estimate may be low.

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