Elon Musk quoted robots as declaring the $ 44 billion takeover of Twitter “temporarily pending”, but not everyone buys that explanation.
The world’s richest man on Friday tweeted that he put his bid on hold while he waited for further information to confirm whether the social media company’s quarterly estimates of fake accounts were accurate, sending Twitter shares falling and raising questions about exactly what Musk meant. .
In fact, agreed transactions can not legally be put on hold. Twitter’s lawyers are still working with Musk̵[ads1]7;s team to complete the deal, said a person familiar with the situation. The billionaire himself said he was still “committed to the acquisition”.
Some analysts have interpreted Musk’s maneuver as an attempt to force Twitter back to the negotiating table to get a cheaper deal when technology stocks cool, or to find a way to pull out.
“Unless Twitter grossly misreported data – which would be a serious security scam – this could be a way to either negotiate a lower price or walk away,” said Stefano Bonini, a corporate governance expert at the Stevens Institute of Technology. “In any case, this shows that we are still quite far from the fact that this transaction is happening in real.”
Social media companies have long tried to curb the fake accounts that litter their platforms, bombarding users with unwanted commercial messages, content or requests. In addition to financially motivated spam and scams, fake accounts can increase the number of followers, give the impression of false popularity or be distributed in disinformation campaigns.
Musk’s tweet raised concerns that Twitter – which has long battled complaints about its robots – has more fake accounts than it reveals. He highlighted a news story citing a recent estimate from the company that “less than 5 percent” of Twitter users are fake accounts and spam accounts.
The figure has also appeared in every quarterly earnings dating back to 2014, although Twitter warns that it is only an estimate and “may be higher”. It has also been disputed by some researchers – a study from 2017 estimates the total at between 9 and 15 percent.
Twitter has occasionally cleaned up spam accounts and invested in systems to catch and eradicate others. But it has also rejected researchers’ estimates and suggested the concern is excessive.
For Musk, which has more than 92 million followers on the platform and is regularly targeted by cryptocurrency scammers, the problem has been a mistake.
“If I had one dogecoin for every cryptocurrency I saw, we would have 100 billion dogecoins,” Musk said in an interview last month. He has said that one of his priorities for the platform would be to “fight the spammers or die while trying”.
Brian Wieser, global president of business intelligence at GroupM, said: “In general, we should be wary of user numbers because estimation has to be done and there is no sufficient authentication of whether you have to be human.”
He noted that Twitter has been more encouraging to the use of aliases compared to Meta-owned Facebook, which tries to link profiles to users’ real identities. “But it seems sincere to suddenly suggest that this is a new thing,” Wieser added.
A cheaper deal?
Although the bot dilemma is not new, one thing has changed since Musk first made its offer: technology stocks are falling. Since the Tesla boss made an offer to buy Twitter on April 14, the Nasdaq has fallen almost 18 percent. The share price of the social media platform is down, but has outperformed the technology index, mainly thanks to Musk’s offer.
Nathan Anderson, the founder of shorts seller Hindenburg Research, said earlier this week that the tech stock route gave Musk the influence to cut the deal again to buy Twitter at a lower value.
“In our view, Musk has all the cards here,” Anderson said. “The board quickly agreed to the agreement as conditions were far more favorable, and we believe they would make the right decision again when faced with the current reality.”
While few know Musk’s real motives for casting doubt on the deal, several analysts believe it is possible he will try to get more favorable terms.
“The $ 44 billion price tag is huge, and it could be a strategy to row back the amount he’s willing to pay to buy the platform,” said Susannah Streeter, a technology analyst at Hargreaves Lansdown.
Brent Thill, a technical analyst at Jefferies, agreed: “We think Elon Musk is putting the deal on hold to negotiate a lower price.”
Once an agreement has been agreed, however, it is very difficult to get a board to accept a lower offer. The Delaware courts, which rule on most corporate cases, have rarely allowed this to happen unless both parties agree. Twitter’s board would risk being sued if it agreed to a lower price without serious justification.
Musk can use what is known as a “material negative change” clause to force Twitter to come to the negotiating table and accept a lower offer. However, the bar for such a clause is quite high. Many buyers tried to use them during the pandemic to lower the price of deals agreed before the Covid-19 pandemic ruined valuations. Few succeed.
One company that did so was LVMH, which caused goldsmith Tiffany to lower its selling price during the pandemic. As part of its strategy, the French luxury group threatened to withdraw from the transaction, claiming that Tiffany had made changes during the pandemic that violated the contract agreement.
Some people think Musk can try something similar. “Sometimes buyers can use new ‘problems’ as a basis for renegotiating the contract price – although Musk is not contractually entitled to do so, a board may believe it is easier to renegotiate than to sue over it,” said Ann Lipton, associate professor in Business Law and Entrepreneurship at Tulane University.
Musk looking for a way out?
Another possibility is that Musk is simply looking to go away. Whether he could easily do that will be another matter for the courts to decide.
Twitter agreed on a termination fee that could technically allow Musk to leave the takeover for $ 1 billion. However, the social media company can also sue to force him to complete the transaction.
Much will depend on the circumstances. Daniel Rubin, a merger and acquisition lawyer at Dechert, the US law firm, said Musk could not only get away with paying the $ 1 billion termination fee, but he could find a way to force Twitter to take money and move on.
“He can always construct the circumstances that make Twitter have no meaningful choice but to quit and let him go away with a fee that limits his liability even for intentional breach. [the terms of the deal]. It’s really a trip straight, with a few steps in between, Rubin said.
Musk has secured funding for the deal, but is trying to reduce the $ 6.5 billion margin loan by inviting wealthy and institutional investors to support his equity bid. He recently raised $ 7.14 billion in financing from investors, including Oracle co-founder Larry Ellison, crypto exchange Binance and asset management groups Fidelity, Brookfield and Sequoia Capital. However, he is still looking for more support.
It is unclear if he is struggling with it, and can see this as a way out of the agreement, said a person with knowledge of the case.
A longtime contract lawyer said Musk would most likely be forced to complete the Twitter acquisition under the existing terms, noting that Delaware state courts had been almost universally unfriendly to buyers who wanted to walk away from signed deals.
“Elon is a wild card in himself, but he may also be the most unique unsympathetic potential defendant in a commercial lawsuit in history, including Carl Icahn,” the lawyer said.
Additional reporting by Sujeet Indap in New York