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

Stock MarketsMay 13, 2022 10:40PM ET
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© Reuters. FILE PHOTO: Elon Musk's Twitter profile is seen on a smartphone placed on printed Twitter logos in this picture illustration taken 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 for Twitter Inc (NYSE:TWTR) was "temporarily on hold" while he waits for the social media company to provide data on the proportion of its fake accounts.

Twitter shares initially fell more than 20% in premarket trading, but after Musk, the chief executive of electric car market Tesla (NASDAQ:TSLA) Inc, sent a second tweet saying he remained committed to the deal, they regained some ground.

The shares were down 9.6% to $40.71 in trading on Friday, a steep discount to the $54.20 per share acquisition price.

Musk, the world's richest person, decided to waive 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." This could make it harder for him to argue that Twitter somehow misled him.

Since Musk inked his deal to acquire Twitter, technology stocks have plunged amid investor concerns over inflation and a potential economic slowdown.

The spread between the offer price and the value of Twitter shares had widened in recent days, implying less than a 50% chance of completion, as investors speculated that the downturn would prompt Musk to walk away or seek a lower price.

"Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users," Musk told his more than 92 million Twitter followers.

"To find out, my team will do a random sample of 100 followers" of the microblogging site, Musk tweeted https://twitter.com/elonmusk/status/1525291586669531137, inviting others to repeat the process and "see what they discover."

"If we collectively try to figure out the bot/duplicate user percentage, we can probably crowdsource a good answer."

Musk tweeted he had "relied upon the accuracy of Twitter's public filings" in reply to a follower who asked why he had not thought of this before offering to buy the company.

Under the terms of Musk's contract with Twitter, he is entitled to ask the company for information on its operations following the signing of the deal.

But this is meant to help him prepare for his ownership of Twitter, not to carry out due diligence and reopen negotiations.

Twitter is planning no immediate action against Musk as a result of Musk's comment, people familiar with the matter said.

The company considered the comment disparaging and a violation of the terms of their deal contract, but was encouraged by Musk subsequently tweeting he was committing to the acquisition, the sources added.

Musk came to Twitter's office for a meeting on May 6 as part of the transaction planning process, a Twitter spokesperson said.

Twitter CEO Parag Agrawal also weighed in, tweeting "While I expect the deal to close, we need to be prepared for all scenarios." On Thursday, Agrawal announced leadership changes and a hiring freeze.

REAL OR FAKE?

Spam or fake accounts are designed to manipulate or artificially boost activity on services like Twitter. Some create an impression that something or someone is more popular than they actually are.

Musk tweeted a Reuters story from ten days ago that cited the fake account figures. Twitter has said that the figures were an estimate and that the actual number may be higher.

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

"This 5% metric has been out for some time. He clearly would have already seen it ... So it may well be more part of the strategy to lower the price," said Susannah Streeter, an analyst at Hargreaves Lansdown (LON:HRGV).

Representatives for Musk did not immediately respond to requests for comment from Reuters.

Tesla's stock rose 5% on Friday. The shares have lost about a quarter of their value since Musk disclosed a stake in Twitter on April 4, amid concerns he will get distracted as Tesla's CEO and that he may have to sell more Tesla shares to fund the deal.

There is plenty of precedent for a potential renegotiation of the price following a market downturn. Several companies repriced agreed acquisitions when the COVID-19 pandemic broke out in 2020 and delivered a global economic shock.

For example, French retailer LVMH threatened to walk away from a deal with Tiffany & Co (NYSE:TIF). The U.S. jewelry retailer agreed to lower the price by $425 million to $15.8 billion.

Acquirers seeking a get out sometimes turn to "material adverse effect" clauses in their merger agreement, arguing the target company has been significantly damaged.

But the language in the Twitter deal agreement, as in many recent mergers, does not allow Musk to walk away because of a deteriorating business environment, such as a drop in demand for advertising or because Twitter's shares have plunged.

Musk is contractually obligated to pay Twitter a $1 billion break-up fee if he does not complete the deal. But the contract also contains a "specific performance" clause that a judge can cite to force Musk to complete the deal.

In practice, acquirers who lose a specific performance case are almost never forced to complete an acquisition and typically negotiate a monetary settlement with their targets.

DEFEAT THE BOTS

Musk has said that if he buys Twitter he "will defeat the spam bots or die trying" and has blamed the company's reliance on advertising for why it has let spam bots proliferate.

He has also been critical of Twitter's moderation policy and has said he wants Twitter's algorithm to prioritize tweets to be public.

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

Trump, who started a rival social media app called Truth Social, took to his platform on Friday to weigh in.

"There is no way Elon Musk is going to buy Twitter at such a ridiculous price, especially since realizing it is a company largely based on bots or spam accounts," Trump wrote in a post, adding that his site is much better.

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

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

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Comments (12)
Mark Dehn
Mark Dehn May 14, 2022 2:36AM ET
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He was never serious about buying Twitter. He just love being in the front page everyday. Just want toying, attention grabber in front of newspapers Elon is a loser. He does achieve nothing ! Tesla has nothing unique. He can not change twitter even one bit even given him on a gold platter. Twitter CEO already knew that's why offered him to buy.
Sabi Sab
SabiSab May 13, 2022 11:55PM ET
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Finished pumping and dumping.  Now he's whining about Twitter's fake accounts to get off easily.  Like he's not been on Twitter all his life and never seen a fake account before!  ROFL!
tom paj
tom paj May 13, 2022 8:35PM ET
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Hey Musk, focus on door handles in my model S, I repalced 9 of them since 2016, also I am waiting 2 years on reimbursement for my MCU recall...
ben sc
ben sc May 13, 2022 4:01PM ET
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buying opportunity. he will get purchase price reduced but still prob high 40s, could make 20% buying now
Matt Kay
Matt Kay May 13, 2022 3:06PM ET
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musk shmusk. who cares what these billionaires do? they just create drama for the sake of it. just watch - this swindler will walk away from the deal and there will be no consequences...
Kamlesh Sawant
Kamlesh Sawant May 13, 2022 11:09AM ET
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so, now Musk is analysing fake account data? than what analysis was did before offer!!! 🤪
gab nea
gab nea May 13, 2022 7:48AM ET
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I think he should spend more time dealing with the perpetual recalls on teslas.
John Laurens
John Laurens May 13, 2022 7:48AM ET
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compared to any other car maker? you clearly don't pay attention.
João Pedro Santos
João Pedro Santos May 13, 2022 7:48AM ET
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you shoul spend more time reading past the headlines, learn the diference between a recall and a over the air software update
mohammed alyabis
mohammed alyabis May 13, 2022 7:48AM ET
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Most of there recals are over the air software updats
gab nea
gab nea May 13, 2022 7:44AM ET
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some egotist think because they were successful doing one thing that they will be successful in all ventures. a fool and his money?
John Laurens
John Laurens May 13, 2022 7:44AM ET
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rrrright.. like cars and space ships? Wait 'til Starlink dominates global internet service.. you should buy extra diapers now...
gab nea
gab nea May 13, 2022 7:41AM ET
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users will head for the door in droves if he goes ahead disrupting content moderation. it's like a rich child playing with an adult toy.
John Laurens
John Laurens May 13, 2022 7:41AM ET
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I joined a few weeks ago soley because he announced he's buying it. If the deal falls through, I'll cancel it..
John Laurens
John Laurens May 13, 2022 7:21AM ET
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I hope he gets it for pennies a share, and then moves on to fecesbook. THAT would be awesome!
 
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