threatened Monday to terminate his $44 billion plan to buy Twitter Inc. (NYSE:TWTR), accusing management of failing to
comply with his request for data on the number of users and fake accounts on
the social media platform. Twitter stock dropped.
Tesla stock has plummeted more than 35% since Musk disclosed his
interest in buying Twitter in early April. The drop also comes amid a stock
market roiled by a global downturn. Twitter stock is down 20% in the same
reports, Musk believes that Twitter was in a “clear material breach” of its
obligations. In this case, Musk can terminate the deal.
has previously put the deal on hold “pending details supporting calculation
that spam/fake accounts do indeed represent less than 5% of users”.
recent reports indicate, Musk did not receive such details from Twitter, so the
deal is in danger. Not surprisingly, traders rushed to sell Twitter stock at
Musk believes he overpaid for Twitter and wants to renegotiate his
offer of $54.20 a share. He also intends to use that disagreement to give him
the right to walk away from the deal without having to pay a $1 billion breakup
On June 8, Twitter gave Musk access to its entire “firehose,” a stream
of tweets and metadata about them that encompasses the 500 million tweets per
The Reasoning Behind The
Musk Deal and
formally and forcefully revived his assertion that Twitter Inc. has a serious
bot problem, and threatened to walk away from his deal to buy the company if
the social network doesn’t do more to prove its users are real people.
Musk said he was putting the deal “on hold” until the social media giant can
prove bots make up fewer than 5% of its users, as the company has stated in
public filings. Musk has estimated that fake accounts make up at least 20% of
In a filing
Monday, Musk sharply disagreed with Twitter’s assessment on bots.
“Twitter’s latest offer to simply
provide additional details regarding the company’s own testing methodologies,
whether through written materials or verbal explanations, is tantamount to
refusing Mr. Musk’s data requests,” Musk’s lawyer wrote in a letter to Twitter’s top
lawyer, Vijaya Gadde. “Twitter’s effort
to characterize it otherwise is merely an attempt to obfuscate and confuse the
issue. Mr. Musk has made it clear that he does not believe the company’s lax
testing methodologies are adequate so he must conduct his own analysis. The
data he has requested is necessary to do so.”
believes the company’s resistance to provide more information is a “clear material breach of Twitter’s
obligations under the merger agreement and Mr. Musk reserves all rights
resulting therefrom, including his right not to consummate the transaction and
his right to terminate the merger agreement.”
near-term dynamics of Twitter stock depend on the market’s perception of the
likelihood of the deal with Musk. Traders will ignore financial projections and
focus on the fate of the deal.
question is whether Elon Musk still wants to buy Twitter and is using the
fake/spam accounts topic to get a better price. Another important factor is
whether Twitter itself wants to be sold, as the company is not actively
engaging with Musk.
the stock will remain extremely volatile in the upcoming trading sessions. The
probability of the deal has decreased in recent weeks.
Attorney General, Ken Paxton, has launched an investigation of Twitter over
concerns of "potentially false" reports related to the number of bots
and other fake accounts on the social network. In a press release Monday,
Paxton claims inauthentic accounts may be helping to "inflate the
value" of Twitter — thus he intends to pursue the investigation under the
state's Deceptive Trade Practices Act, which protects against misleading
advertisers, businesses and everyday users.
office is pursuing the case just as Tesla CEO Elon Musk is seemingly attempting
to scuttle his own bid to purchase Twitter. Musk has, for several weeks, been
suggesting the platform's bot numbers may be far greater than its current
leadership are reporting.
been ordered to provide unredacted documents detailing the company's active
user counts since 2017, the volume of "inauthentic" accounts over
that period and the methods used to calculate the ratio of fake accounts. It
also has to outline its advertising model, including the revenue it generates
takeover includes a $1 billion breakup fee for each party, but Musk can’t just
walk away by paying the charge. The merger agreement includes a specific
performance provision that allows Twitter to force Musk to consummate the deal,
according to the original filing. That could mean that, should the deal end up
in court, Twitter might secure an order obligating Musk to complete the merger
rather than winning monetary compensation for any violations of it.
lawyer, Mike Ringler of Skadden, Arps, Slate, Meagher & Flom, said Twitter
must cooperate by providing the data requested so that Musk can secure the debt
financing necessary to consummate the deal.
is also complicated by the fact that numerous financial institutions have
handed Musk commitment letters for debt financing, said Quinn.
shares slumped 1.49% on Monday, suggesting increased skepticism that Musk will
finalize his $54.20-a-share offer and further widening the gap between the
market’s expectations and the billionaire’s price. The shares have barely --
and only briefly -- surpassed $50 since Musk sprung his buyout plan on April
14. The deal came together at breakneck speed in part because Musk waived the chance
to look at Twitter’s finances beyond what was publicly available.
For a company that’s supposed to be
bought out, Twitter stock surely doesn’t trade like that’s the case.
In fact, TWTR stock is 26.5% below its
deal price. Currently trading below $40, the stock is below the pre-takeover
rumors that sent it bursting higher in April.
It is argued that Musk may walk from the
deal over the misstated user numbers and concerns on how many users are
Further, Musk has leverage. If he walks
and has to eat the $1 billion breakup fee, he could always come back and make
another offer knowing that TWTR stock will crater if he walks from the deal.
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