Elon Musk Puts the Twitter Deal on Hold

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Billionaire Elon Musk has put his plans for Twitter acquisition on hold weeks after he sealed a $44 billion deal with the microblogging platform. Musk tweeted on Friday that the deal is temporarily on hold pending details supporting the calculation that spam/fake accounts do indeed represent less than 5% of users.

This briefly sent down Twitter shares by more than 20% in pre-market trading before rebounding. The Tesla CEO, two hours after the first tweet, highlighted that he is still very much committed to the acquisition.

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Twitter, in its quarterly financial report which was released on April 28, estimated that fake or spam accounts made up fewer than 5% of the platform’s active users during the first three months of the year. The company pointed out that the estimates were based on a review of sample accounts. It believes the numbers are “reasonable”. But it said the measurements were not independently verified and that the actual number of fake or spam accounts could in fact be higher.

The social media company has had problems with spam for years. Twitter had acknowledged that reducing fake and malicious accounts would play a key role in the company’s ability to keep growing.

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But now, attention is on Musk. It’s unclear why he would back off from the deal and it’s nothing to do with the latest disclosure. Dan Ives, a tech analyst at Wedbush Securities, says the billionaire turned the “Twitter circus show” into a “Friday the 13th horror show”. He believes the Street will see this deal as likely to fall apart. Rumor mills are also rumbling that Musk will negotiate for a lower price deal or will simply walk away from the deal.

But not before paying a $1 billion “breakup fee”. The analysts said many in the market will see Musk using his Twitter filing/spam accounts as a way to get out of the deal.

And ever since the Musk-Twitter deal came into the limelight, tech stocks have been sharply lower. Fingers are also been wagged at the way Musk announced the deal’s “pause”. Experts have described it as unusual – at least by normal corporate merger and acquisition standards.

Josh White, an assistant professor of finance at Vanderbilt University, shared that they usually see some sort of filing that would come first, an amendment – stating that the company has uncovered some information in the process of due intelligence thus reconsidering acquisition – to previous filings on the deal. He said this happens when there is access to the books and access to proprietary information. White highlighted that “a tweet” just doesn’t normally happen.

And it’s not significant enough to warrant SEC action. However, it could turn the deal sour.

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