Elon Musk said Friday that his planned $44 billion US purchase of Twitter is “temporarily on hold” pending details on spam and fake accounts on the social media platform, another twist amid signs of internal turmoil over the proposed acquisition.
Musk, who has been vocal about his desire to clean up Twitter’s problem with “spam bots” that mimic real people, appeared to question whether the company was underreporting them.
In a tweet, the Tesla billionaire linked to a Reuters story from May 2, citing a financial filing from Twitter that estimated false or spam accounts made up fewer than five per cent of the company’s “monetizable daily active users” in the first quarter.
Still committed to acquisition
—@elonmusk
“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk wrote in his tweet, indicating he’s skeptical that the number of inauthentic accounts is that low.
It wasn’t clear whether the issue could scuttle the deal. Musk later tweeted that he’s “still committed to acquisition.”
Neither Twitter nor Musk responded early Friday to requests for comment.
The issue of fake accounts on Twitter is not secret. In its quarterly filing with the SEC, even Twitter doubted that its count of bot accounts was correct, conceding that the estimate may be low.
“In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated,” the filing says.
A review of Twitter filings with the U.S. Securities and Exchange Commission shows that the estimate of spam bot accounts and similar language expressing doubts about it have been in Twitter’s quarterly and annual reports for at least two years, well before Musk made his offer and it would have been known to him and his advisors.
Twitter deal impacting Tesla
Stock in both Twitter and Tesla swung sharply in opposite directions Friday, with Twitter’s stock falling nearly 10 per cent and shares of Tesla, which Musk had proposed using to help fund the Twitter deal, jumping nearly seven per cent in trading before the opening bell.
Investors have had to weigh legal troubles for Musk, as well as the possibility that acquiring Twitter could be a distraction from running the world’s most valuable automaker.
The proposed deal continued to pressure shares of Tesla, which had already fallen 16 per cent this week
Musk agreed to purchase Twitter for $54.20 per share. As of Friday morning, the price of a share sits around $40.
The sharp jump in the price of Tesla shares before the opening bell Friday signalled rising doubts that the acquisition of Twitter will take place.
Musk has already sold off more than $8 billion worth of his Tesla shares to finance the purchase.
Originally Musk had committed to borrowing $12.5 billion with Tesla stock as collateral to buy Twitter. He also would borrow $13 billion from banks and put up $21 billion in Tesla equity.
Last week, Musk strengthened the equity stake in his offer for Twitter with commitments of more than $7 billion from a diverse group of investors, including Silicon Valley heavy hitters like Oracle co-founder Larry Ellison.
Money from the new investors cuts the amount borrowed on the value of Tesla stock to $6.25 billion, according to the filing. The Tesla equity share could go from $21 billion to $27.25 billion.
Wedbush analyst Dan Ives, who follows both Tesla and Twitter, said Musk’s “bizarre” tweet will lead Wall Street to either think the deal is likely falling apart, Musk is attempting to negotiate a lower deal price or he is simply walking away from the deal with a $1 billion penalty.
“Many will view this as Musk using this Twitter filing/spam accounts [excuse] as a way to get out of this deal in a vastly changing market,” Ives wrote.
He added that Musk’s use of Twitter, rather than a financial filing, to make the announcement was troubling, and “sends this whole deal into a circus show with many questions and no concrete answers as to the path of this deal going forward.”
Musk’s tweet comes a day after the social media company fired two of its top managers. Twitter said the company is pausing most hiring, except for critical roles, and is “pulling back on non-labour costs to ensure we are being responsible and efficient.”
In a memo sent to employees and confirmed by Twitter, CEO Parag Agrawal said the company has not hit growth and revenue milestones after the company began to invest “aggressively” to expand its user base and revenue.
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