Musk halts $44 billion Twitter deal over fake account data

 

Musk halts $44 billion Twitter deal over fake account data

Elon Musk tweeted Friday that his $44 billion cash deal for Twitter Inc (TWTR.N) is “temporarily on hold.” At the same time, the Twitter company is waiting to provide data on the percentage of fake accounts.

The social media company shares initially fell more than 20% in pre-sale trading, but after Tesla CEO Musk sent out a second tweet saying he was still committed to the deal, they regained some steam. The stock was down 12% in volume heavy before the market opened as investors were concerned about the takeover.

Musk, the world’s richest person, decided to buy Twitter on April 25 to get the San Francisco-based company to accept his “best and last offer” of $54.20 per share.

Since then, technology shares have fallen amid investor concerns about inflation and a possible economic slowdown.

The value of Twitter’s stock has widened in recent days, meaning it has less than a 50% chance of completion, as investors predicted that the economic downturn would prompt Musk to walk or seek a lower price.

Now “The Twitter deal is temporarily on hold pending details backing the account that spam/fake accounts already account for less than 5% of users,” Musk told his more than 92 million Twitter followers.

 Fake accounts are designed to manipulate activity on services like Twitter. Some are related to improving business results, while others are designed to create the impression that something or someone is more popular.

Musk tweeted a Reuters story ten days ago that cited the fake account numbers. Twitter said the numbers were estimates and that the actual number could be higher.

According to regulatory filings from Twitter, the number of spam accounts on the microblogging site has held steady at less than 5% since 2013, leading some analysts to question why Musk is raising them now.

“That metric has been off at 5% for some time. It’s clear he’s already seen it...so it might be part of a price-cutting strategy,” said Susanna Streeter, an analyst at Hargreaves Lansdowne.

Acquires seeking an exit sometimes resort to the “material adverse effect” clauses in the merger agreement, arguing that the target company has been significantly hurt.

Musk is contractually obligated to pay Twitter a $1 billion breakup fee if it does not complete the deal. The language in the deal contract appears to limit any damages Twitter could demand of Musk to that level.

But the contract also contains a “specific performance” clause that a judge can invoke to compel Musk to complete the deal.

In practice, acquirers who lose a certain performance status are not forced to complete the acquisition and usually negotiate a cash settlement with their targets.

“The nature of Musk creating so much uncertainty in a tweet (not a file) is very concerning to us and the street, and now this whole deal is sending into a circus show with so many questions and no definitive answers about the path of this deal going forward,” wrote analyst Daniel Ives. At Wedbush in a note.

Defeat the robots

Musk said that if he bought Twitter, he would “beat the spambots or die trying” and blamed the company’s reliance on ads for allowing spam bots to increase.

He has also criticized Twitter’s moderation policy and said he wants the Twitter algorithm as a priority

The tweets were made public, and he was against the excessive force on service for companies that advertise.

Still, Musk is targeting ad revenue to more than double by 2028, according to slides he presented to investors and reported by The New York Times.

According to an investor presentation, ads are expected to make up about 45% of Twitter’s total revenue, down from nearly all its revenue today.

Earlier this week, Musk said he would rescind Twitter’s ban on former US President Donald Trump when he buys the social media platform, signaling his intent to cut back on moderation.