May 13 (Reuters) – Elon Musk tweeted on Friday that his $44 billion cash deal for Twitter Inc ( TWTR.N ) was “temporarily on hold” as he waits for the social media company to provide data on percentage 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 Inc ( TSLA.O ), sent a second tweet saying he remained committed to the deal, they regained ground.
Shares fell 9.6% to $40.71 in trading on Friday, a steep discount to the $54.20 share purchase price.
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Musk, the world’s richest man, 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.” . That could make it harder for him to argue that Twitter somehow misled him.
Since Musk signed his deal to buy Twitter, tech stocks have tumbled amid investor concerns about inflation and a possible economic slowdown.
The gap between the offer price and Twitter’s stock value had widened in recent days, implying less than a 50% chance of completion, as investors speculated that the decline would prompt Musk to walk away or seek a lower price. . Read more
“Twitter is temporarily put on hold pending details that support the calculation that spam/fake accounts truly 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, inviting others to repeat the process and “see what they find.”
“If we collectively try to figure out the percentage of bot/duplicate users, maybe we can gather a good answer.”
Musk tweeted that he had “relied on the accuracy of Twitter’s public filings” in response to a follower who asked him 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 on its operations after signing the deal.
But that’s meant to help him prepare for his ownership of Twitter, not to conduct due diligence and reopen negotiations.
Twitter is not planning any 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 breach of their contractual terms of the deal, but was encouraged by Musk subsequently tweeting that 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 spokesman said.
Twitter CEO Parag Agrawal also chimed in, tweeting: “While I expect the deal to close, we must be prepared for all scenarios.” On Thursday, Agrawal announced leadership changes and a hiring freeze. Read more
REAL OR FAKE?
Spam or fake accounts are created to manipulate or artificially increase activity on services like Twitter. Some create the impression that something or someone is more popular than they really are.
Musk tweeted a Reuters story from ten days ago that cited the fake account numbers. Twitter said the numbers were an estimate and that the actual number could be higher.
The microblogging site’s estimated number of spam accounts has held steady below 5% since 2013, according to regulatory filings from Twitter, prompting some analysts to question why Musk is increasing it now.
“That 5% metric has been out for some time. He would have probably seen it by now… So it may be more part of the strategy to lower the price,” said Susannah Streeter, an analyst at Hargreaves Lansdown.
Musk’s representatives did not immediately respond to requests for comment from Reuters.
Tesla shares rose 5% on Friday. Shares have lost about a quarter of their value since Musk revealed the stock on Twitter on April 4, amid concerns that he will be distracted as Tesla’s CEO and that he may have to sell more Tesla shares -s to finance the deal.
There is plenty of precedent for a possible price renegotiation after a market decline. Some companies re-evaluated agreed acquisitions when the COVID-19 pandemic broke out in 2020 and caused a global economic shock.
For example, French retailer LVMH ( LVMH.PA ) threatened to walk away from a deal with Tiffany & Co. The US jewelry retailer agreed to drop the price by $425 million to $15.8 billion.
Buyers seeking an exit sometimes turn to “material adverse effect” clauses in their merger agreement, arguing that the target company is significantly harmed.
But language in the deal agreement with Twitter, as in many recent mergers, does not allow Musk to leave because of a deteriorating business environment, such as declining ad demand or because Twitter’s stock has fallen.
Musk is contractually obligated to pay Twitter a $1 billion breakup fee if he does not complete the deal. But the contract also contains a “specific performance” clause that a judge could cite to force Musk to end the deal.
In practice, buyers who miss a specific performance event are almost never forced to complete a purchase and usually negotiate a monetary settlement with their targets.
CONQUER THE WORLDS
Musk has said that if he buys Twitter, he will “beat the spam bots or die trying” and blamed the company’s reliance on advertising for allowing spam bots to proliferate.
He has also been critical of Twitter’s moderation policy and has said he wants Twitter’s algorithm to prioritize tweets that are public.
This week, Musk said he would lift Twitter’s ban on former US 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 would buy Twitter for such a ridiculous price, especially after realizing it is a company based largely on bots or spam accounts,” Trump wrote in a tweet, adding that his site is much better.
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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 and editing by Alexander Smith, Nick Zieminski, Alistair Bell and Himani Sarkar
Our Standards: The Thomson Reuters Trust Principles.