Monday, June 06, 2022

Elon Musk Threatens to “Terminate” Twitter Deal, Shares Silly Reason He Shouldn’t Pay $1 Billion Penalty


Wren Graves
Mon, June 6, 2022,

The post Elon Musk Threatens to “Terminate” Twitter Deal, Shares Silly Reason He Shouldn’t Pay $1 Billion Penalty appeared first on Consequence.

Elon Musk is threatening to “terminate” his $44 billion Twitter takeover, which is a problem, because his original purchase agreement included a $1 billion penalty if he pulled his offer. So the Tesla founder seems to be preparing the argument that the whole deal should be voided. He claims that Twitter is lying about the number of users who are “fake/spam accounts,” which is also a problem, because he already waived his right to due diligence. But since he has nothing to lose but pride, Musk is forging ahead anyway; his lawyer sent a letter to Twitter on Monday accusing them of “actively resisting and thwarting his information rights” regarding spam accounts.

Musk began laying the groundwork for this strategy in mid-May, tweeting that in his experience about 20% of Twitter’s use base are “fake/spam accounts,” and that the true number “could be *much* higher.”

Twitter CEO Parag Agrawal responded, “Our actual internal estimates for the last four quarters were all well under 5%.” He added, “We don’t believe that this specific estimation can be performed externally, given the critical need to use both public and private information (which we can’t share). Externally, it’s not even possible to know which accounts are counted as [monetizable Daily Active Users] on any given day.”

Musk’s new letter says Twitter sent him a June 1st message further explaining their methodology. But the billionaire is dissatisfied with the analysis: “Mr. Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover.”

That “own analysis,” is a matter of some contention. Musk wrote on May 13th that, “To find out, my team will do a random sample of 100 followers of @twitter. I invite others to repeat the same process and see what they discover.” When many people argued that this was not exactly scientific, he added, “Pick any account with a lot of followers,” and “Ignore first 1000 followers, then pick every 10th. I’m open to better ideas.”

Evidently he did not think Twitter’s ideas counted. The letter ended on a threatening note: “This is a clear material breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement.”

The number of fake accounts on Twitter is clearly relevant to its profitability, but that makes Musk’s behavior harder to understand, not easier. As previously stated, he waived his right to due diligence in order to close the sale faster. Besides that, for years now Twitter has been claiming in SEC filings that about 5% of its user base are spam accounts.

Twitter did recently revise downwards its estimate of total users. The company said that it had double-counted between 1.4 and 1.9 million accounts after introducing a feature that allowed people to link accounts three years ago. But 330 million people still use Twitter, meaning the company’s estimate was off by about half of one percentage point. Besides this minor correction, nothing has changed since Musk’s offer was accepted.

For that reason, many people have looked elsewhere to explain his sudden squeamishness. Daniel Ives, an analyst with Wedbush, said in a note to investors, “Many will view this as Musk using this Twitter filing/spam accounts as a way to get out of this deal in a vastly changing market.”

That’s a reference to Tesla’s plummeting stock price. Musk is partially financing the Twitter purchase with a margin loan against Tesla, and that, coupled with a bearish tech market and more Tesla recalls, has pushed Tesla’s stock price down by over 30% since the deal was announced. Musk may be the richest man in the world, but as much as 70% of his wealth is in Tesla stock, according to an analysis from last year. He might not be able to afford $44 billion for a social media platform right now, especially one as fitfully-profitable as Twitter.

Even as Musk continues to pursue this fake/spam account strategy, his overall goals remain unclear. While it looks like he’s hoping to void the deal, he might also be trying to renegotiate the purchase price to something a little easier to swallow. It’s unknown if Twitter will be interested in that, or if they’d rather take his $1 billion penalty and go on their merry way.

Regardless of what happens with Twitter, Musk may be facing larger problems. A new report revealed that his company SpaceX paid $250,000 to a flight attendant who accused him of sexual misconduct. If all of his business ventures go south, perhaps he can depend on the largesse of his sister, who recently launched a romance and erotica streaming platform.

Twitter Retreats As Musk Says The Company Materially Breached The Deal



Vladimir Zernov
Mon, June 6, 2022, 

Key Insights

Elon Musk believes that Twitter has materially breached the merger agreement.


Musk wants to see data that proves that Twitter has less than 5% of fake and spam accounts.


Twitter’s losses may be limited as short-sellers could be afraid to aggressively short in the stock in the sub-$40 territory.

Twitter Falls As Musk Demands More Data On Spam And Fake Accounts

Shares of Twitter found themselves under pressure after reports indicated that Elon Musk could cancel the deal if the company does not provide data on spam and fake accounts.

According to the reports, Musk believes that Twitter was in a “clear material breach” of its obligations. In this case, Musk can terminate the deal.

Elon Musk has previously put the deal on hold “pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users”.

As the recent reports indicate, Musk did not receive such details from Twitter, so the deal is in danger. Not surprisingly, traders rushed to sell Twitter stock at the opening.
What’s Next For Twitter Stock?

The near-term dynamics of Twitter stock depend on the market’s perception of the likelihood of the deal with Musk. Traders will ignore financial projections and focus on the fate of the deal.

The deal implies a Twitter stock price of $54.20 per share, which could limit traders’ desire to short the stock at sub-$40 levels.

The key question for traders is whether Elon Musk still wants to buy Twitter and is using the fake/spam accounts topic to get a better price. Another important factor is whether Twitter itself wants to be sold, as the company is not actively engaging with Musk.

Most likely, the stock will remain extremely volatile in the upcoming trading sessions. While the probability of the deal has decreased in recent weeks, the stock may fail to develop significant downside momentum as short-sellers will be worried that they could have to buy the stock back at $54.20 if the deal succeeds.

Texas AG investigates Twitter over bot counts


Chip Somodevilla/Getty Images


Jon Fingas
·Reporter
Mon, June 6, 2022

Texas's Attorney General, Ken Paxton, has launched an investigation of Twitter over concerns of "potentially false" reports related to the number of bots and other fake accounts on the social network. In a press release Monday, Paxton claims inauthentic accounts may be helping to "inflate the value" of Twitter — thus he intends to pursue the investigation under the state's Deceptive Trade Practices Act, which protects against misleading advertisers, businesses and everyday users.

Paxton's office is pursuing the case just as Tesla CEO Elon Musk is seemingly attempting to scuttle his own bid to purchase Twitter. Musk has, for several weeks, been suggesting the platform's bot numbers may be far greater than its current leadership are reporting. It's interesting timing for Musk and Paxton's interests to align: Tesla just opened a Gigafactory in Texas, and is moving its headquarters to the region. That's a lot of potential business, and it comes as the state has offered tax breaks to companies building local facilities. For whatever it's worth, Paxton has previously been accused of abuse of office over allegations of bribery, but was eventually cleared by his own office.

Twitter has been ordered to provide unredacted documents detailing the company's active user counts since 2017, the volume of "inauthentic" accounts over that period and the methods used to calculate the ratio of fake accounts. It also has to outline its advertising model, including the revenue it generates in Texas.

It's also notable that Musk's hopes of boosting free speech on Twitter sync with Republic aims to reverse alleged censorship of conservative viewpoints on the site. Twitter has long rejected claims of ideological bias, and sued Paxton over claims of political retaliation that infringed its First Amendment rights.

We've asked Twitter for comment. The company has previously maintained that fake accounts represent less than five percent of users, but Paxton echoed Musk's currently unsupported concerns that fakes might represent 20 percent or more of all Twitter accounts.

The Attorney General has sued multiple tech companies over their practices, including Google (for its ad business) and Meta (over facial recognition). It's not clear yet if Paxton intends to pursue a lawsuit against Twitter as well.


A timeline of billionaire Elon Musk's bid to control Twitter


Associated Press
Mon, June 6, 2022, 7

Elon Musk threatened Monday to call off his $44 billion acquisition of Twitter, accusing the company of refusing to give him information about spam bot accounts.

Here’s a look at some of what’s transpired between the billionaire Tesla CEO and the social media platform.

January 31: Musk starts buying shares of Twitter in near-daily installments, amassing a 5% stake in the company by mid-March.

March 26: Musk, who has 80 million Twitter followers and is active on the site, said that he is giving “ serious thought ” to building an alternative to Twitter, questioning free speech on the platform and whether Twitter is undermining democracy. He also privately reaches out to Twitter board members, including his friend and Twitter co-founder Jack Dorsey.

March 27: After privately informing them of his growing stake in the company, Musk starts conversations with Twitter's CEO and board members about potentially joining the board. Musk also mentions taking Twitter private or starting a competitor, according to later regulatory filings.

April 4: A regulatory filing reveals that Musk has rapidly become the largest shareholder of Twitter after acquiring a 9% stake, or 73.5 million shares, worth about $3 billion.

April 5: Musk is offered a seat on Twitter’s board on the condition he amass no more than 14.9% of the company's stock. CEO Parag Agrawal said in a tweet that “it became clear to us that he would bring great value to our Board.”

April 11: Twitter CEO Parag Agrawal announces Musk will not be joining the board after all.

April 14: Twitter reveals in a securities filing that Musk has offered to buy the company outright for about $44 billion.

April 15: Twitter’s board unanimously adopts a “poison pill” defense in response to Musk’s proposed offer, attempting to thwart a hostile takeover.

April 21: Musk lines up $46.5 billion in financing to buy Twitter. Twitter board is under pressure to negotiate.

April 25: Musk reaches a deal to buy Twitter for $44 billion and take the company private. The outspoken billionaire has said he wanted to own and privatize Twitter because he thinks it’s not living up to its potential as a platform for free speech.

April 29: Musk sells roughly $8.5 billion worth of shares in Tesla to help fund the purchase of Twitter, according to regulatory filings.

May 5: Musk strengthens his offer to buy 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.

May 10: In a hint at how he would change Twitter, Musk says he’d reverse Twitter’s ban of former President Donald Trump following the Jan. 6, 2021 insurrection at the U.S. Capitol, calling the ban a “morally bad decision” and “foolish in the extreme.”

May 13: Musk said that his plan to buy Twitter is “ temporarily on hold.” Musk said that he needs to pinpoint the number of spam and fake accounts on the social media platform. Shares of Twitter tumble, while shares of Tesla rebound sharply.

June 6: Musk threatens to end his $44 billion agreement to buy Twitter, accusing the company of refusing to give him information about its spam bot accounts.

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