Why has Elon Musk already suspended his deal on Twitter?

Elon Musk cited bots when he announced that his $44 billion Twitter acquisition is “temporarily on hold,” but not everyone buys that explanation.

The world’s richest man tweeted on Friday that he is stop trying As he waited for more information to confirm whether the social media company’s quarterly estimates of its fake accounts were accurate, Twitter posts dropped and raised questions about exactly what Musk meant.

In fact, legally agreed transactions cannot be suspended. Twitter’s lawyers are still working with Musk’s team to complete the deal, a person familiar with the situation said. The billionaire himself said he remains “committed to the acquisition”.

Some analysts interpreted Musk’s gambit as an attempt to force Twitter back to the negotiating table to get a cheaper deal with cooler tech stocks, or to find a way to pull out.

“Unless blatantly false statements are reported on Twitter — which would be a serious security fraud — this could be a way to negotiate a lower price or walk away,” said Stefano Bonini, a corporate governance expert at Stevens Institute of Technology. “In any case, this shows that we are still quite a long way from having this deal happen on the ground.”

Social media companies have long tried to curb fake accounts littering their platforms, bombarding users with unsolicited commercial messages, content or commercial requests. In addition to spam and financially motivated scams, fake accounts can increase the number of followers, giving the impression of false popularity, or be disseminated in disinformation campaigns.

Musk’s tweet indicated concern that Twitter – which has long battled complaints about bots – has more fake accounts than it reveals. He highlighted a news story citing a recent company estimate that “less than 5 percent” of Twitter users are fake accounts and spam.

This number has also appeared in every quarterly earnings file going back to 2014, although Twitter warns that it’s only an estimate and “could be higher.” As some researchers objected to it – one study from 2017 put the sum by 9 to 15 percent.

Twitter implemented Accidental purges of spam accounts and invested in systems to catch and eliminate others. But it also rejected the researchers’ estimates and I suggested Anxiety is exaggerated.

For Musk, who has more than 92 million followers on the platform and is regularly targeted by crypto scammers, the issue was a concern.

“If I had one dogecoin for every crypto scam 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 will be to “defeat spam bots or die trying.”

“Generally we should be suspicious of user numbers because the estimation has to be done and there isn’t enough validation as to whether you should be human,” said Brian Weiser, Global Head of Business Intelligence at GroupM.

He noted that Twitter was more encouraged to use pseudonyms than Facebook, which is owned by Meta, which attempts to associate profiles with users’ real-world identities. “But it seems disingenuous to suddenly suggest that this is something new,” Weser added.

Cheaper deal?

While the bot dilemma isn’t new, one thing has changed since Musk first came up with his show: technology stock They slip. Since the Tesla CEO made an offer to buy Twitter on April 14, the Nasdaq has fallen about 18 percent. The social media platform’s stock price fell but outperformed the tech benchmark, mostly thanks to Musk’s presentation.

Nathan Anderson, founder of the Hindenburg Short Research Company, said earlier This week that gave tech stocks defeat Musk leverage to re-cut Twitter buy-to-be bargain.

“From our point of view, Musk holds all the cards here,” Anderson said. “The board quickly approved the deal when conditions were considerably more favourable, and we believe they will make the right decision again when faced with the current reality.”

While little is known about Musk’s true motives for questioning the deal, many analysts believe he could try to get better terms.

“The $44 billion price tag is huge, and it might be a strategy to go back to how much he is willing to pay to buy the platform,” said Susanna Streeter, technical analyst at Hargreaves Lansdown.

Brent Thill, a technical analyst at Jefferies, agreed: “We believe Elon Musk is putting the deal on hold to negotiate a lower price.”

Once a deal is agreed upon, it is very difficult to get a board of directors 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 prosecution if it agreed to a lower price without serious justification.

Musk could use what’s known as a “reverse physical change” clause to force Twitter to the negotiating table and accept a lower offer. However, the maximum limit for such an item is quite high. Many buyers have tried to use it during the pandemic to cut the price of deals agreed before the Covid-19 pandemic wreaked havoc on valuations. Few succeed.

One company that did this was LVMH, which acquired jeweler Tiffany’s Selling price reduced during the pandemic. As part of its strategy, the French luxury group has threatened to walk away from the deal, claiming that Tiffany made changes during the pandemic that violated its contractual agreement.

Some believe that Musk might try something similar. said Ann Lipton, associate professor of business law and entrepreneurship at Tulane University.

Is Musk looking for a way out?

Another possibility is that Musk is simply looking to get away. The question of whether he can do so easily will likely be up to the courts.

Twitter has agreed to a termination fee that could technically allow Musk to forgo his acquisition for $1 billion. However, the social media company can also sue him to force him to complete the transaction.

Much will depend on the circumstances. Daniel Rubin, an M&A attorney at US law firm Dechert, said Musk could not only get away with paying the $1 billion termination fee, but could find a way to force Twitter to take the cash and move on.

“He can always engineer circumstances that will leave Twitter with no meaningful choice but to terminate and allow it to leave for a fee that limits its liability even in the case of intentional infringement. [the terms of the deal]. “It’s basically a right walk, with two steps in between,” said Robin.

Musk has secured financing for the deal, but is trying to reduce his $6.5 billion margin loan by inviting wealthy and institutional investors to back his stock offer. he is recently raised $7.14 billion in funding 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.

A person familiar with the matter said it was unclear if he was struggling to do so, and might see this as a way out of the deal.

The deals’ attorney has long said that Musk will likely have to complete his Twitter purchase under the current terms, noting that Delaware courts have been harsh almost universally for buyers seeking to walk away from signed agreements.

“Elon is a wild card to himself, but he may also be the most uniquely unsympathetic potential defendant in a business case in history, including Carl Icahn,” the attorney said.

Additional reporting by Sujit Indap in New York