Elon Musk puts Twitter deal on hold
Billionaire Elon Musk has put his plans to acquire Twitter on hold for weeks after he sealed a $44 billion deal with the microblogging platform. Musk tweeted on Friday that the deal is based on tentatively pending details that support the calculation that spam/fake accounts actually represent less than 5% of users.
This caused Twitter shares to fall more than 20% in pre-market trading before rebounding. The first tweet comes two hours after the Tesla CEO highlighted that he is still very committed to the acquisition.
Twitter, in its quarterly financial report released on April 28, estimated that fake or spam accounts made up less than 5% of the platform’s active users during the first three months of the year. The company stated that the estimates were based on a review of sample accounts. This assumes that the numbers are “reasonable”. But it said the measurements had not been independently verified and that the actual number of fake or spam accounts may actually be higher.
The social media company has had a problem with spam for years. Twitter had acknowledged that reducing fake and malicious accounts would play an important role in the company’s ability to keep growing.
But now the focus is on Musk. It is not clear why he will back out of the deal and it has nothing to do with the latest revelations. Dan Ives, a technical analyst at Wedbush Securities, says the billionaire turned his “Twitter circus show” into “Friday the 13”th Ghost Show”. He believes the Street will see the deal as likely to collapse. Rumor mills are also saying that Musk will negotiate a lower price or walk away from the deal.
But not before paying a $1 billion “breakup fee.” Analysts said many in the market would see Musk using his Twitter filing/spam accounts as a way to get out of the deal.
And ever since the Musk-Twitter deal hit the headlines, tech stocks have fallen sharply. Fingers were also pointed at the way Musk announced the “pause” of the deal. Experts call it unusual – at least by normal corporate merger and acquisition standards.
Josh White, an assistant professor of finance at Vanderbilt University, shared that they usually see some sort of filing that comes first, an amendment that states that the company has disclosed certain information in a proper intelligence process, this Type Acquisition Reconsidered – On the deal for the previous filing. He said this is when there is access to books and access to proprietary information. White highlighted that “a tweet” doesn’t normally happen.
And it’s not significant enough to warrant SEC action. However, this may sour the deal.