Musk wars with Twitter over his buyout deal — on Twitter
Tesla CEO Elon Musk promised that taking over Twitter would enable him to rid the social media platform of its annoying “spam bots.” Now he’s arguing — without presenting any evidence — that there might be just too many of those automated accounts for the $44 billion deal to move ahead.
The sharp turnaround by the world’s richest man makes little sense except as a method to scuttle or renegotiate a deal that’s becoming increasingly costly for him, experts said. And while such hardball tactics aren’t uncommon in corporate mergers, the way this is playing out — in a highly public, seemingly erratic conversation on the very platform Musk wants to buy — has little precedent.
Which means that Musk is negotiating the future of Twitter … on Twitter.
It’s increasingly clear that Musk realizes his offer was too high and is looking for a way “to potentially walk away or negotiate the price down,” said Brian Quinn, an associate law professor at Boston College.
Early Tuesday, Musk tweeted that his deal to buy the company can’t “move forward” unless the company shows public proof that fewer than 5% of the accounts on the social media platform are fake or spam bots. That followed Musk’s Friday tweet that the deal was on hold pending more bot details — after which Twitter shares plunged by nearly 10% — and his Monday comments at a Miami conference suggesting he wanted a lower price for the company.
Experts say Musk can’t unilaterally place the deal on hold, although that hasn’t stopped him from acting as though he can. If he walks away, he could be on the hook for a $1 billion breakup fee.
Musk also spent much of Monday in a Twitter back-and-forth with Twitter CEO Parag Agrawal, who posted a series of tweets explaining his company’s effort to fight bots and how it has consistently estimated that less than 5% of Twitter accounts are fake. In one tweet, Musk responded with a poop emoji.
Twitter has disclosed its bot estimates to the U.S. Securities and Exchange Commission for years, while also cautioning that its estimate might be too low.
In his tweet Tuesday, Musk said that “20% fake/spam accounts, while 4 times what Twitter claims, could be much higher. My offer was based on Twitter’s SEC filings being accurate.” He added: “Yesterday, Twitter’s CEO publicly refused to show proof of 5%. This deal cannot move forward until he does.”
None of that makes sense, Quinn said. Not only has Twitter disclosed the uncertainty of its estimates for years, he said, “the company gave him the opportunity to engage in due diligence and kick the tires and look around.” Musk did not take up that offer.
Twitter declined to comment. The company said in a statement filed with the SEC on Tuesday that it is “committed to completing the transaction on the agreed price and terms as promptly as practicable.”
Getting cold feet about mergers is nothing new. It sometimes leads prospective buyers to look for changed conditions that can get them out of a deal.
It was the COVID-19 pandemic, in part, that led French luxury powerhouse LVMH, the parent company of Louis Vuitton and other luxury brands, to say it was abandoning a planned takeover of U.S. jeweler Tiffany & Co. in 2020. Tiffany sued to enforce the deal, and LVMH lashed back. In the end, the famed jeweler agreed to a slightly reduced buyout price.
The Twitter sale agreement allows Musk to get out of the deal if there is a “material adverse effect” caused by the company. It defines that as a change that negatively affects Twitter’s business or financial conditions.
Chester Spatt, a finance professor at Carnegie Mellon University and a former SEC chief economist, said Musk could claim that Twitter gave him wrong information about the number of spam bots. Even if the excuse doesn’t hold up, it could serve as a negotiating tactic, he said. “A material adverse change is often the key to your ability to renegotiate the deal,” Spatt said.
Twitter shares have dropped below their trading price before Musk unveiled his bid. Tesla shares are also down over the same period, which affects Musk’s ability to raise money for the acquisition.