The sharp turnaround by the world's richest man makes little sense except as a method to scuttle or renegotiate a deal that's becoming increasingly costly for Musk, experts said. And while such hardball tactics aren't uncommon in corporate mergers, the way it's happening — in a highly public, seemingly erratic conversation on the very platform Musk wants to buy — has little precedent.
In effect, Musk is negotiating the future of Twitter ... on Twitter.
“That’s the hook he’s trying to grab onto as the reason for him to potentially walk away or negotiate the price down lower,” said
Musk took to Twitter early Tuesday to say his deal to buy the company can't “move forward” unless the company shows public proof that fewer than 5% of the accounts on the social media platform are fake or spam. That followed a Friday tweet that said the deal was on hold pending more bot details — causing Twitter stock to plunge by nearly 10% — and Monday comments at a
Experts say Musk can’t unilaterally place the deal on hold, although that hasn’t stopped him from acting as though he can. If he walks away, he could be on the hook for a
Musk also spent much of Monday in a back-and-forth with Twitter CEO
In his tweet Tuesday, Musk said that “20% fake/spam accounts, while 4 times what Twitter claims, could be much higher. My offer was based on Twitter’s SEC filings being accurate.”
He added: “Yesterday, Twitter’s CEO publicly refused to show proof of 5%. This deal cannot move forward until he does.”
That kind of language makes no sense, Quinn said.
“The disclosures he's complaining about are the same disclosures the company has filed at the SEC for quite a bit of time. There's nothing new here," Quinn said. “In the run-up to the transaction, the company gave him the opportunity to engage in due diligence and kick the tires and look around. He waived due diligence and said, ‘No, I don't want to see any more.'"
Twitter declined to comment.
Getting cold feet about mergers is nothing new. It sometimes leads prospective buyers to look for changed conditions that can get them out of a deal or offering price.
It was the COVID-19 pandemic, in part, that led French luxury powerhouse LVMH, the parent company of
The Twitter sale agreement allows Musk to get out of the deal if there is a “material adverse effect” caused by the company. It defines that as a change that results in an adverse impact on Twitter’s business or financial conditions.
Even if the excuse doesn't hold up, it can serve as a negotiating tactic with the corporate board that's trying to sell the company. “In a merger situation, a material adverse change is often the key to your ability to renegotiate the deal,” Spatt said.
Correct or not, Musk’s latest complaint about the bot count hits upon a sore point for Twitter, which has long faced criticism about the lack of transparency around its bot numbers. In the aftermath of revelations about Russian use of social media to meddle in the 2016 U.S. presidential election, a group led by
In a blog post soon after, Twitter complained that such outside research “is often inaccurate and methodologically flawed.” Ferrara said that Twitter has taken a “frivolous” approach to this issue, especially compared to peers such as Facebook.
Twitter shares have dropped below the price they traded at before Musk unveiled his bid.
“It’s quite natural for the buyer to want to cut a better deal,” Spatt said. Twitter could take Musk to court and argue that the sale contract remain in force, but could face significant legal fees, Spatt said.
The whole string of Musk tweets will likely draw scrutiny from the SEC, which will probably look at whether any false or misleading statements were made, Spatt said. “The SEC doesn’t want to see manipulation of the public markets,” he said. “Their role is trying to help ensure that investors are getting a fair deal, to make sure the information out there is accurate.”
However, Musk has made his statements in the open, and although he may be negotiating that way, the SEC is more concerned with hidden aspects of a deal, Spratt said.
The bot problem also reflects a longtime fixation for Musk, who as one of Twitter’s most active celebrity users is prone to having fake accounts mimicking his name and likeness to promote cryptocurrency scams. And he seems to think it'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 expect will see them.
“Twitter claims that 95% of daily active users are real, unique humans," he tweeted Tuesday. “Does anyone have that experience?"
At a
“The chances of a deal ultimately getting done is not looking good now,”
Musk's offer to buy Twitter for
To finance the acquisition, Musk pledged some of his
In tweets on Monday, Agrawal acknowledged that Twitter isn’t perfect at catching bots. He wrote that every quarter, the company has made the estimate of less than 5% spam. “Our estimate is based on multiple human reviews of thousands of accounts that are sampled at random, consistently over time,” Agrawal wrote.
Estimates for the last four quarters were all well under 5%, he wrote. “The error margins on our estimates give us confidence in our public statements each quarter.”
Twitter has put the under 5% estimate in its quarterly filings with the SEC for at least the last two years, well before Musk made his offer in April. Over that same period, Twitter has also expressed uncertainty in its bot count, conceding that the estimate may be low.
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AP writer
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