Elon Musk Postpones $44 Billion Twitter Acquisition; He Wants To Lower The Valuation Now? Fake Twitter Accounts?
Elon Musk tweeted that his $44-billion deal for Twitter is “temporarily on hold”.
He is waiting for data on the proportion of fake accounts on the site which could have otherwise been monetizable.
Presence Of Fake Accounts
The company estimated that false or spam accounts represented fewer than 5% of its monetizable daily active users during the first quarter.
However, the actual number may be higher.
It presently has 229 million users who were shown ads.
This is a priority for Musk who wants to remove “spam bots” from the platform.
Uncertainties Over Deal Closure
Twitter is apprehensive about the risks it faces until the deal with Musk is closed.
What is hanging in the balance is whether advertisers would continue to spend on Twitter and “potential uncertainty regarding our future plans and strategy.”
Musk said that he is still committed to the acquisition.
He had decided to skip due diligence when he agreed to buy Twitter on April 25 since he wanted the company to accept his “best and final offer”.
Another Twist Coming?
While the deal is awaiting closure, the gap between the offer price and the value of Twitter shares has widened.
This implies a less than a 50% chance of completion, as investors fear that the downturn would prompt Musk to walk or seek a lower price.
Questions are coming up as to why Musk is bringing up the spambot topic now, since the 5% estimate has been out for some time.
Susannah Streeter, an analyst at Hargreaves Lansdown thinks this might be a tactic to lower the price of the company.
Renegotiation Likely Not Possible
He might be getting just that, with Twitter shares down 16% at $38.06 in pre-market trading in New York, way below the $54.20 per share deal price.
There is precedent for a renegotiation of the price following a market downturn.
Acquirers (which is Musk in this case) turn to “material adverse effect” clauses in their merger agreement, arguing that the target company has been significantly harmed.
However, in this case Musk may not be able to do that since the Twitter deal agreement prevents him from walking away because of a deteriorating business environment, such as a drop in demand for advertising or because Twitter’s shares have plunged.
He is contractually obligated to pay Twitter a $1 billion break-up fee if he pulls out.
No Spambots, No Moderation
One of Musk’s “election promises” has been that he will “defeat the spam bots or die trying”.
He accused Twitter of being reliant on advertising which has resulted in the proliferations of bots.
He was also upset with Twitter’s moderation policy and is against too much power of the corporates that advertise on the platform.
He’s going to bring Donald Trump back to the site in his show of protest (?) against moderation or affinity towards the ex US president.
Even with all this talk, the man is targeting advertising revenue to more than double by 2028.
Ads are expected to make up about 45% of Twitter’s total revenue by that time, down from nearly all of its revenue today, according to Musk’s investor presentation.