The abrupt reversal of the world’s richest man makes little sense except as a method to scuttle or renegotiate a deal that is becoming increasingly costly for Musk, experts have said.
And while such tough tactics aren’t uncommon in corporate mergers, the way it’s played out — in a very public and seemingly erratic conversation about the very platform Musk wants to buy — has little precedent.
Indeed, Musk is negotiating the future of Twitter…on Twitter.
“That’s the hook he’s trying to hang on to as a reason why he could potentially walk away or negotiate the price down,” said Brian Quinn, an associate law professor at Boston College.
“He’s torpedoing the deal, trying to play down the deal.”
Musk took to Twitter early Tuesday to say his deal to buy the company couldn’t ‘move forward’ unless the company publicly shows that less than 5% of accounts on the social media platform are fake or spam.
This followed a tweet on Friday saying the deal was on hold pending further details on the bot – causing Twitter shares to fall nearly 10% – and comments on Monday at a conference in Miami suggesting he wanted a lower price for the business.
Experts say Musk cannot unilaterally suspend the deal, although that hasn’t stopped him from acting like he can.
If he leaves, he could be liable for $1 billion in severance pay.
Musk also spent much of Monday going back and forth with Twitter CEO Parag Agrawal, who posted a series of tweets explaining his company’s efforts to combat bots and how it has always estimated that less than 5% of Twitter accounts are fake.
It’s a message that Twitter has been leaking to the US Securities and Exchange Commission for years, while warning that its estimate may be too low.
In his Tuesday tweet, Musk said “20% fake/spam accounts, when four times what Twitter claims, could be much higher. My bid was based on the accuracy of Twitter’s SEC filings.”
He added, “Yesterday the CEO of Twitter publicly refused to show proof of 5%. This deal can’t move forward until he does.”
That kind of language doesn’t make sense, Quinn said.
“The disclosures he complains about are the same ones the company has filed with the SEC for some time. There’s nothing new here,” Quinn said.
“During the transaction, the company gave him the opportunity to do his due diligence, kick the tires and look around. He gave up the due diligence and said, ‘No, I don’t want anything anymore. to see “. “
Twitter declined to comment.
Being cold-eyed about mergers is nothing new.
This sometimes leads potential buyers to look for modified terms that can get them out of a deal or an offer price.
It was partly the COVID-19 pandemic that led French luxury powerhouse LVMH, the parent company of Louis Vuitton and other clothing and wine brands, to say it was abandoning the planned takeover of the American jeweler. Tiffany & Co. in 2020.
Tiffany sued to enforce the agreement and LVMH fought back.
In the end, the famous jeweler agreed to a slightly reduced takeover price.
The Twitter sale agreement allows Musk to opt out of the deal if there is a “material adverse effect” caused by the company.
He defines this as a change that results in a negative impact on Twitter’s business or financial terms.
Chester Spatt, a finance professor at Carnegie Mellon University and former chief economist of the SEC, said Musk could claim that Twitter gave him the wrong information about the number of spambots.
Even if the excuse doesn’t stick, it can be used as a bargaining tactic with the board trying to sell the company.
“In a merger situation, a material adverse change is often key to your ability to renegotiate the deal,” Spatt said.
Twitter shares fell below their trading price before Musk unveiled his offer.
Tesla shares have also been down since Twitter’s bid, which is affecting Musk’s ability to raise funds for the acquisition.
“It’s only natural that the buyer wants to get a better deal,” Spatt said.
Twitter could sue Musk and argue that the sales contract remains in effect, but that would cost the company big legal fees, Spatt said.
Musk’s whole series of tweets will likely attract the attention of the SEC, which will likely look into whether any false or misleading statements were made, Spatt said.
“The SEC doesn’t want to see the manipulation of public markets,” he said.
“Their role is to try to make sure investors get a fair deal, to make sure the information that’s available is accurate.”
However, Musk has come out in the open, and while he may be negotiating that way, the SEC is more concerned with the hidden aspects of a deal, Spratt said.
The bot problem also reflects a long-standing fixation for Musk, who, as one of Twitter’s most active celebrity users, is prone to having fake accounts impersonating his name and likeness to promote scams. cryptocurrency.
And he seems to think that’s a problem for most other Twitter users, as well as advertisers who sell ads on the platform based on how many real people they think will see them.
“Twitter claims 95% of daily active users are unique real humans,” he tweeted on Tuesday. “Does anyone have this experience?”
At a technology conference in Miami on Monday, Musk estimated that at least 20% of Twitter’s 229 million accounts are spam bots, a percentage he says is at the low end of his assessment.
It was at the same All In summit that Musk hinted that he would like to pay less for Twitter than the $44 billion he agreed to last month.
“The odds of a deal finally being done don’t look good now,” Dan Ives, an analyst with Wedbush Securities, which covers both Twitter and Tesla, said in a research note.
He estimated there was a “60%+ chance” that Musk would end up walking away from the deal and paying the billion dollar severance fee.
Musk’s offer to buy Twitter for $54.20 per share went public on April 14.
Twitter shares closed Tuesday at $38.32, up 2.5%.
To fund the acquisition, Musk pledged some of his Tesla shares, the price of which has fallen by about a third since the deal was announced.
In tweets on Monday, Agrawal acknowledged that Twitter isn’t great at catching bots.
He wrote that each quarter the company estimated less than 5% spam.
“Our estimate is based on multiple human reviews of thousands of accounts that are randomly sampled, consistently over time,” Agrawal wrote.
Estimates for the past four quarters were all well below 5%, he wrote.
“The margins of error on our estimates give us confidence in our public statements each quarter.”
Twitter has been putting the less than 5% estimate in its quarterly filings with the SEC for at least two years, long before Musk made his offer in April.
During the same period, Twitter also expressed uncertainty about its bot count, admitting that the estimate could be low.
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