Musk puts Twitter purchase on hold, casting doubt on $44 billion deal

DETROIT (AP) — Tesla billionaire Elon Musk has put his plan to buy Twitter on what he called a temporary “suspension,” raising new doubts about whether he will go ahead with the $44 billion acquisition.

Musk tweeted early Friday that he wanted to limit the number of fake and spam accounts on the social media platform. He has been vocal about his desire to get rid of Twitter’s problem with “spam bots” that mimic real people, and seemed to wonder if Twitter was under-reporting it.

But the company revealed in regulatory filings that its bot estimates may have been low for at least two years, leading some analysts to believe that Musk might raise the issue as a reason to back out of the purchase.

“Twitter Deal temporarily on hold Pending details supporting the account that spam/fake accounts actually account for less than 5% of users,” Musk tweeted on Friday morning, indicating his suspicion that the number of non-genuine accounts is very low.

On Friday, Musk later tweeted that “Still Committed to the acquisition. Neither Twitter nor Musk responded to requests for comment on Friday. Musk had a lengthy courtship with Twitter that culminated in an April deal to acquire the social platform.

The problem of fake accounts on Twitter is no secret.

In its quarterly filing with the US Securities and Exchange Commission, Twitter itself expressed doubts that the number of bot accounts was correct, acknowledging that the estimate may be understated. “In making this decision, we applied significant judgment, so our estimate of miscalculations or unwanted may not accurately represent the actual number of such accounts, and the actual number of miscalculations or unwanted may be higher than we estimated,” he says.

A review of Twitter’s filings with the SEC shows that the company’s estimates of spam accounts and similar language expressing uncertainty about it have been in Twitter’s quarterly and annual reports for at least two years, long before Musk made his bid.

Sarah Silver, professor of business journalism and financial communications at Quinnipiac University, said it appears that Musk is using the number of spam accounts as an excuse to opt out of the deal.

“Claiming that this was his reason for stopping the deal is just not credible,” Silver said. This is not a new issue for him. It’s not just entering his consciousness now.”

Shares in both Twitter and Tesla swung sharply in opposite directions on Friday, with Twitter shares plunging 9.7%, and shares of Tesla, which Musk suggested using to help fund the Twitter deal, rose 5.7%.

But shares of Tesla, which Musk has been selling to fund some of his Twitter acquisition, have plummeted since it was revealed that the social platform had become a target of Musk.

Tesla shares have lost a quarter of their value in the past month, down from around $1,150 in early April when Musk confirmed he had acquired a massive stake on Twitter to $769.59 on Friday.

β€œIt has become a lot more expensive for him to buy this company with Tesla stock,” Silver said.

A SEC spokesperson declined to comment.

Musk’s net worth, which Forbes estimated earlier this week at $240 billion, was $232 billion as of Friday.

In 2017, academic researchers attempted to take a count of all active Twitter accounts in English, and estimated that as many as 15% were bots of some kind. Twitter is getting better at detecting and constantly deleting spam accounts β€” but they are being added to the platform all the time, Emilio Ferrara, the University of Southern California professor who helped lead the research said Friday.

“It’s really hard to say the number in general,” he said. “It is not possible – unless Twitter is – to make a comprehensive estimation of the user base.”

Tesla stocks may also have benefited from Twitter bot accounts over the years. A University of Maryland researcher recently concluded that such bots have been used to generate hundreds of thousands of positive tweets about Tesla, potentially boosting its stock in years when it was under stress.

Neither Tesla nor its supporters are responsible for these bots.

Investors evaluating the deal had to balance Musk’s legal woes and the possibility that acquiring Twitter would be a distraction from running the world’s most valuable automaker.

Musk has already sold more than $8 billion of his Tesla stock to help fund the purchase of Twitter.

Originally, Musk committed to borrowing $12.5 billion of Tesla stock as collateral. It will borrow $13 billion more from banks and put up $21 billion in Tesla stock that will go to the banks in exchange for cash when the deal closes.

Last week, Musk announced pledges of more than $7 billion from investors that would reduce the number of Tesla shares he would have to post as collateral.

Wedbush analyst Dan Ives, who tracks both Tesla and Twitter, called Musk’s tweet “weird” and said Wall Street was skeptical. .

If the deal doesn’t go through, Musk could have to pay a $1 billion breakup fee.

He added that Musk’s use of Twitter in place of a financial deposit to advertise was annoying and “sends this entire deal to a circus show with many questions and no definitive answers regarding the future course of this deal.”

Using Twitter to make a major announcement that moves the stock prices of two companies could be problematic for Musk. Under the 2018 securities fraud settlement with the Securities and Exchange Commission, Musk must obtain approval from a Tesla attorney before tweeting anything that might affect the company’s stock price. It wasn’t clear if Musk got that approval on his tweet at 5:44 AM ET on Friday announcing the Twitter deal was put on hold.

The Securities and Exchange Commission (SEC) has already issued subpoenas to Tesla and Musk via a tweet from last fall asking followers if he should sell Tesla stock. The court filing states that Musk did not obtain the required prior approval.

Last month, a federal judge in New York rejected Musk’s attempt to dismiss the settlement on the grounds that he had signed it under duress, and that it violated his right to free speech. The judge also upheld Musk’s subpoena.

The dispute stems from the October 2018 agreement with the Securities and Exchange Commission that Musk signed. Tesla and Tesla have each agreed to pay $20 million in civil fines over Musk’s tweets about obtaining “secured financing” to make Tesla private at $420 per share. But the funding wasn’t aligned and Tesla remained a public company.

And on Thursday, Twitter sacked two of its top managers. Twitter said the company is temporarily halting most hiring, except for critical roles, and is “stepping back on non-labor costs to ensure our responsibility and efficiency.”

In a note sent to employees and confirmed by Twitter, CEO Paraj Agrawal said the company had not achieved growth and revenue after the company began investing “vigorously” to expand its user base and revenue.

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Chan reported from London. Associated Press business writers Michael Chapman in New York and Matt O’Brien in Providence, Rhode Island, contributed to this report.

Kelvin Chan and Tom Krecher, The Associated Press

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