Why is Elon Musk really stopping his Twitter deal?

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Elon Musk referred to the bots when he announced the capture of Twitter for $ 44 billion “temporarily suspended”, but not everyone accepts this explanation.

The richest man in the world on Friday wrote that it is suspending your bet while he waited for more information to confirm whether the company’s social media company’s quarterly estimates of its fake accounts were accurate, which led to a drop in Twitter shares and raised questions about what exactly Musk meant.

Indeed, agreed transactions cannot be legally deferred. Twitter lawyers are still working with the Mask team to complete the deal, said one person familiar with the situation. The billionaire himself said he was still “committed to the acquisition.”

Some analysts have interpreted Mask’s maneuver as an attempt to get Twitter back at the negotiating table to get a cheaper deal if technology stocks cool down, or find a way out.

“If Twitter hasn’t rudely distorted the data – which would be a serious security fraud – it could be a way to either negotiate a lower price or leave,” said Stefano Banini, a corporate governance expert at the Stevens Institute of Technology. “In any case, it shows that we are still a long way from making this deal happen.”

Social networking companies have long tried to keep bogus accounts from clogging their platforms by flooding users with unsolicited commercial messages, content or requests. In addition to financially motivated spam and fraud, fake accounts can increase the number of subscribers, giving the impression of false popularity, or be deployed in disinformation campaigns.

Twitter Musk has expressed concern that Twitter, which has long struggled with complaints about its bots, has more fake accounts than it reveals. He highlighted the news, citing a recent assessment by the company that “less than 5 percent” of Twitter users are fake accounts and spam.

The figure has also appeared in every quarterly earnings report since 2014, though Twitter warns it’s just an estimate and “could be higher”. This has also been challenged by some researchers – one 2017 study put the total amount 9 to 15 percent.

Twitter implemented periodic cleaning spam accounts and invested in systems to catch and eradicate others. But he also rejected the researchers’ assessments suggested care is inflated.

For Mask, who has more than 92 million subscribers on the platform and who is regularly targeted by cryptocurrency scammers, the problem has become irrelevant.

“If I had dogecoin for every crypto-scam I saw, we would have 100 billion dogecoin,” Musk said in an interview last month. He said one of his priorities for the platform would be to “defeat spam bots or die trying.”

Brian Wieser, global president of business analytics at GroupM, said: “In general, we should be skeptical about the number of users because we need to make an assessment, and there is not enough authentication of whether we need to be human.”

He noted that Twitter is more encouraging the use of aliases compared to Facebook, owned by Meta, which tries to link profiles with real user identities. “But it seems insincere to suddenly assume it’s a new thing,” Wieser added.

Cheaper deal?

Although the bot dilemma is not new, one thing has changed since Musk first made his proposal: technology stocks slipping. After Tesla’s CEO made an offer to buy Twitter on April 14, the Nasdaq fell nearly 18 percent. The share price of the social networking platform fell but exceeded the technology index, largely due to Mask’s offer.

Nathan Anderson, founder of shortselling Hindenburg Research, said earlier this week that the defeat of technology stocks gave Mask levers for re-reduction a deal to buy Twitter at a lower rate.

“In our view, Musk keeps all the cards here,” Anderson said. “The council quickly agreed to the deal when conditions were much more favorable and we think they will make the right decision again when confronted with the current reality.”

Although few know the true motives of Mask for doubts in this deal, some analysts suggest that perhaps he will try to get more favorable terms.

“The $ 44 billion price tag is huge, and it could be a strategy to recoup the amount he’s willing to pay to buy the platform,” said Susanna Streeter, a technical analyst at Hargreaves Lansdown.

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

However, once the deal is agreed, it is very difficult to get the board to accept a smaller offer. Delaware courts, which rule on most corporate cases, have rarely allowed this to happen without the consent of both parties. Twitter’s board would risk suing if it agreed to a lower price without serious justification.

Musk could use an item known as “substantial adverse changes” to get Twitter to sit down at the negotiating table and accept a smaller offer. However, the bar for such an item is quite high. Many buyers tried to use them during the pandemic to lower the price of deals agreed before the Covid-19 pandemic wreaked havoc on estimates. Few succeed.

One of the companies that did this was LVMH, which was approached by jeweler Tiffany reduce its selling price during a pandemic. As part of its strategy, the French luxury group has threatened to abandon the deal, claiming that Tiffany made changes during the pandemic that violated the contract.

Some think Musk might try something like this. “Sometimes buyers can use new ‘problems’ as a basis for reviewing the transaction price – even if Musk is not allowed to do so under the contract, the council may think it’s easier to negotiate than sue,” said Anne Lipton, an associate professor. . Business Law and Entrepreneurship at Tulane University.

Is Musk looking for a way out?

Another possibility is that Musk just wants to leave. Whether he can do it easily will probably be decided by the courts.

Twitter has agreed to a shutdown fee, which could technically allow Mask to abandon the $ 1 billion takeover. However, the social media company may also sue to force him to close the deal.

Much will depend on the circumstances. Daniel Rubin, a lawyer for mergers and acquisitions of the American corporate law firm Dechert, said Musk could not just leave by paying a $ 1 billion termination fee, but he could find a way to get Twitter to withdraw money and move on.

“He can always create conditions under which Twitter will have no choice but to stop and allow him to get away with a fee that limits his liability even for intentionally violating [the terms of the deal]. In fact, it is a walk straight, with a couple of steps between them, ”Rubin said.

Musk has secured funding for the deal, but is trying to cut a $ 6.5 billion margin loan by inviting wealthy and institutional investors to support his bid share. He is recently raised Funding of $ 7.14 billion from investors including Oracle co-founder Larry Allison, Binance cryptocurrency exchanges and asset management groups Fidelity, Brookfield and Sequoia Capital. However, he is still looking for more support.

It is unclear whether he is trying to do so, and may see this as a way out of the deal, – said a man who knows the case.

The longtime deal lawyer said Musk was likely to be forced to complete the buyout on Twitter under the current terms, noting that Delaware courts were almost universally unfriendly to buyers seeking to withdraw from the signed agreements.

“Elon himself is a wild card, but he may also be the most unique potential defendant in the commercial process in history, including Karl Aikan,” the lawyer said.

Additional report by Sujit Indap in New York

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