Experts say that if Tesla’s CEO leaves, he could be on the hook for $ 1 billion.
LONDON, UK – Tesla CEO Elon Musk has promised that the seizure of Twitter will allow him to rid the social networking platform of annoying “spam bots”. He now claims, without presenting any evidence, that these automated accounts may be too many. to advance the deal for $ 44 billion.
The sharp turn of the richest man in the world does not make sense, except as a method to thwart or re-close the deal, which is becoming more expensive for Mask, experts say. And while such harsh tactics are not uncommon in corporate mergers, the way it happens – in a very public, seemingly chaotic conversation on the same platform that Musk wants to buy – has few precedents.
In fact, Musk is negotiating the future of Twitter … on Twitter.
“This is the hook he’s trying to grab as a reason to potentially leave or negotiate a price reduction,” said Brian Quinn, an associate professor of law at Boston College. “He’s torpedoing the deal, trying to negotiate a deal.”
On Tuesday, Musk spoke on Twitter to say that his deal to buy the company could not “move forward” unless the company showed public evidence that less than 5% of social media platform accounts are fake or spam. This came after Friday’s tweet, which said the deal was postponed until more information about the bots – causing Twitter shares to fall nearly 10% – and comments Monday at a conference in Miami suggesting he wants a lower price for the company.
Experts say Musk could not unilaterally postpone the deal, although that did not stop him from acting as if he could. If he leaves, he could be on the hook for $ 1 billion.
Musk also spent most of Monday talking to Twitter CEO Parag Agraval, who posted a series of tweets explaining his campaign’s efforts to combat bots and that she consistently believes that less than 5% of Twitter accounts are fake . This is a message that Twitter has been opening up to the U.S. Securities and Exchange Commission for years, while warning that its rating may be too low.
У his tweet on tuesday, Musk said, “20% of fake / spam accounts, while 4 times more than Twitter claims, could be much higher. My proposal was based on the accuracy of the SEC’s Twitter documents. “
He added: “Yesterday the CEO of Twitter publicly refused to show evidence of 5%. This deal cannot move forward until it does. “
Such language makes no sense, Quinn said.
“Disclosure of the information he is complaining about is the same thing that the company has been submitting to the SEC for quite some time. “There’s nothing new here,” Quinn said. – On the eve of the deal, the company gave him the opportunity to exercise due diligence, tire up and look around. He refused due diligence and said, “No, I don’t” don’t want to see any more. “
Twitter declined to comment.
Cooling about mergers is not new. Sometimes this forces potential buyers to look for changed terms that may withdraw them from the deal or the bid price.
In part, it was the COVID-19 pandemic that prompted France’s elite company LVMH, the parent company Louis Vuitton and other clothing and wine brands to say it was abandoning its planned 2020 acquisition of US jewelry company Tiffany & Co. Tiffany sued to secure execution of the deal, and LVMH responded. In the end, the famous jeweler agreed to a slightly reduced redemption price.
The sale agreement on Twitter allows Mask to withdraw from the deal if there is a “significant adverse effect” caused by the company. He defines this as a change that leads to adverse effects on Twitter’s business or financial environment.
Chester Spet, a professor of finance at Carnegie Mellon University and a former SEC chief economist, said Musk could claim that Twitter had given him incorrect information about the number of spam bots.
Even if the occasion is not supported, it can serve as a negotiation tactic with the board trying to sell the company. “In a merger situation, significant adverse changes are often key to your ability to reconsider a deal,” Spet said.
True or not, Mask’s latest complaint about the number of bots strikes a sore point for Twitter, which has long faced criticism due to a lack of transparency in the number of bots. Following revelations about Russia using social media to interfere in the 2016 U.S. presidential election, a team led by Southern California University researcher Emilio Ferrara estimated in 2017 that 9% to 15% of active English-language Twitter accounts were bots. .
Soon in his Twitter blog he complained that such external research “is often inaccurate and methodologically flawed”. Ferrara said Twitter had taken a “non-serious” approach to the issue, especially compared to analogues like Facebook.
Shares of Twitter fell below the price at which they traded before Musk published his bet. Tesla shares also fell after a bet on Twitter, affecting Mask’s ability to raise money for the acquisition.
“It’s only natural that a buyer wants to make a better deal,” Spet said. Twitter could sue Mask in court and argue that the contract of sale remains in force, but could face significant legal costs, Spet said.
The whole Mask tweet series is likely to be reviewed by the SEC, which is likely to check to see if any false or misleading statements have been made, Spet said. “The SEC doesn’t want to see manipulation in state markets,” he said. “Their role is to ensure that investors get fair trades to make sure the information is accurate.”
However, Musk has made his statements open, and while he may be negotiating this way, the SEC is more concerned about the hidden aspects of the deal, Spratt said.
The problem with the bot also reflects a long-standing fix on Mask, who, as one of Twitter’s most active celebrity users, tends to have fake accounts that mimic his name and similarities to promote cryptocurrency fraud. And he seems to think this is a problem for most other Twitter users as well as advertisers who sell ads on the platform depending on the number of real people they expect to see them.
“Twitter claims that 95% of daily active users are real, unique people,” he tweeted on Tuesday. “Does anyone have such an experience?”
At a technology conference in Miami on Monday, Musk estimated that at least 20 percent of Twitter’s 229 million Twitter accounts are spam bots, a percentage he said was at its lowest. At the same All In Summit summit, Musk hinted most strongly that he would like to pay for Twitter less than the $ 44 billion he agreed to last month.
“The chances of a deal eventually being made are not very good right now,” Wedbush Securities analyst Dan Ives, who covers both Twitter and Tesla, said in a research note. He estimated that there is a “60% + probability” that Musk will eventually abandon the deal and pay a $ 1 billion gap fee.
Mask’s offer to buy Twitter for $ 54.20 per share was unveiled on April 14. Shares of Twitter closed Tuesday at $ 38.32, up 2.5%.
To fund the acquisition, Musk has pledged part of its Tesla shares, which have fallen in price by about a third since the deal was announced.
In tweets Monday, Agraval admitted that Twitter is not perfect at catching bots. He wrote that each quarter the company estimates less than 5% of spam. “Our estimate is based on numerous reviews of thousands of randomly selected accounts over a long period of time,” Agraval wrote.
Estimates for the past four quarters have been well below 5%, he wrote. “The possibility of errors in our assessments gives us confidence in our public statements every quarter.”
Twitter has put an estimate of less than 5% in its quarterly SEC documents for at least the past two years, long before Musk made his offer in April. During the same period, Twitter also expressed uncertainty about the number of bots, acknowledging that the score may be low.