Elon Musk says Twitter deal ‘cannot go on’ in its current state

Elon Musk, chaos cop.

Mr. Musk, the world’s richest man, continued to confuse his $44 billion takeover of Twitter on Tuesday, even as the social media company tried to keep the deal on track. Early in the morning, the billionaire tweeted that “this deal cannot go through” until he got more details about the amount of spam and fake accounts on the platform.

A few hours later, Twitter said it was “committed to completing the transaction as quickly as possible at the agreed price and terms”. It urged its shareholders to back Mr Musk’s offer, which appeared to be in public tweet-for-tweet negotiations, even though he closed the blockbuster deal last month to buy Twitter.

Mr. Musk’s increasingly skeptical — and erratic — comments about the acquisition have left investors, bankers and Twitter itself guessing at his motives. Some analysts think the 50-year-old is trying to cut the acquisition price or walk away from the deal altogether. Many were nervous by his methods, with market-moving statements being made in the middle of the night at conferences or in emoji-laden tweets.

Yet his remarks are consistent with Mr. Musk, where he often puts the wind in his sails at the biggest moments, shuns experts and relies almost exclusively on his own advice. Years ago, he said he had stopped making business plans. And people close to Mr Musk have said he had no plan whatsoever when he made an offer to buy Twitter last month.

“I think all of this is just that he’s making a lot of noise and showing the kind of headache he would give the company if they tried to litigate this,” said Ann Lipton, a professor of corporate governance at Tulane Law School.

Shares of Twitter fell 8 percent Monday and rose more than 3 percent on Tuesday. They hovered around $38 a share, well below the $54.20 a share Mr. Musk agreed to pay for the company and below where it traded before the billionaire initially revealed in March that he had bought a large stake in Twitter. .

Behind the scenes, the two sides are moving forward with the deal: they jointly filed a regulatory filing on Tuesday. Renegotiating a deal wouldn’t be easy for Mr Musk. In addition to a $1 billion cancellation fee, the deal with Twitter includes a “specific performance clause,” which gives the company the right to sue him and force him to complete the deal as long as the debt financing he has amassed remains intact.

Mr. Musk, who also heads rocket company SpaceX and electric car maker Tesla, did not immediately respond to a request for comment. Twitter declined to comment.

Mr Musk’s latest comments on the Twitter deal center on the issue of fake accounts on the platform. Twitter has long said in registration requests that less than 5 percent of its accounts are fake — a figure Musk says is hard to believe. In a tweet Released at 3:32 a.m. Tuesday, Mr. Musk said the figure could be well above 20 percent, without providing any information to back up his claim.

“My offer was based on the accuracy of Twitter’s SEC filings,” Musk said in the message.

Part of the reason the fake account issue is now coming to the fore is that Mr. Musk did not conduct due diligence on Twitter before agreeing to buy the company. Potential buyers usually go to great lengths to study a target’s company, customers, growth potential, and stock price before making an offer. But according to a regulatory filing from the company on Tuesday, Mr. Musk told Twitter that completing due diligence with the social media company was not necessary before signing an agreement.

In the filing, Twitter also warned that “if the merger is not completed, and subject to the circumstances that cause the merger not to be completed, the price of our common stock could drop significantly.” Uncertainty about deals can hurt company morale and increase employee turnover.

On Tuesday, two vice presidents and a department head informed colleagues that they would be leaving the company for new opportunities, a Twitter representative said. The departures were previously reported by Bloomberg.

“If the bone figure is that important to his assessment of the company’s value, he should have done his due diligence before signing the deal,” said Erik Gordon, a professor of business administration at the University of Michigan. “And he should have added an explicit statement about bots to the contract.”

Mr. Musk has built pressure on Twitter with his public comments questioning the deal. He started tweeting last Friday that his purchase was “temporarily on hold”‘ until he could get more details about the amount of spam and fake accounts on the platform. He later followed up and said he still “dedicatedto the appointment.

On the weekend he has tweeted that Twitter’s legal department had “called to complain” that he had violated a nondisclosure agreement by discussing the bot sample size of 100. Musk’s deal with Twitter also includes a non-disparaging clause that prohibits him from tweeting negatively about the transaction.

Then, at a technology conference in Miami on Monday, Mr. Musk said striking a deal for Twitter at a lower price was “not out of the question” given the questions about spam and fake accounts.

“The more questions I ask, the more my concerns grow,” Mr. Musk said at the event. “So you know that its acquisition should ultimately be resolved within a reasonable amount of time and without revenue collapsing along the way.”

He added that it was a “substantial negative variance” for Twitter to say it has less than 5 percent fake or spam accounts, but the figure is actually significantly more.

“Material adverse change” clauses are used by buyers to get out of deals or renegotiate if serious damage has been done to a business. But such accusations rarely prevail in court. Twitter’s bot count is unlikely to qualify as a material negative statement, attorneys said, as Twitter has released similar quarterly numbers and there would be no apparent change to evaluate. And Twitter also warns in its regulatory filings that the bot’s estimates could be “higher” than it estimates.

Twitter’s deal contract contains eight pages of “representations”: basically promises about the company’s condition at the time of the merger, although none directly relate to the number of bots.

on MondayTwitter CEO Parag Agrawal also posted a lengthy thread detailing how the company calculates the number of bots. He said the company’s internal estimates for the last four quarters were “all well below 5 percent”.

Mr. Musk later responded to Mr. Agrawal’s tweet thread with a poo emoji. Him too tweeted to the Securities and Exchange Commission, indicating that he wants the agency to investigate the deal. (Mr. Musk has been the subject of SEC investigations before.)

In Tuesday’s submission, Twitter also noted the significant challenges it weighed in deciding to accept Mr Musk’s offer. Bret Taylor, the chairman of Twitter, spoke to several institutional shareholders who advised the board of directors to consider Mr. Musk’s proposal against the risks of continuing as a publicly traded company.

Twitter also said that while management and bankers received interest from other “financial sponsors and institutional investors,” none of the interested parties made a specific counter-offer.

Ele Klein, co-chair of the global shareholder activism group at the law firm Schulte Roth & Zabel, said Mr Musk’s pranks have put Twitter’s board in a difficult position.

“It then becomes a matter of, if you are the company, even if you have a really good factual pattern, how long do you want to fight,” said Mr. Small. “Life is too short to fight Elon Musk.”

Yes

Mike Isaac reporting contributed.