In a move that surprised no one, Elon Musk announced his deal to purchase Twitter was “on hold”. While Musk claimed questions about bots on the site need to be investigated, not everyone was willing to buy that explanation.
It was just a few weeks ago when Musk announced his offer to buy the social media, micro-blogging website. The deal would have Musk purchase the site for $44 billion dollars.
However, he announced last week he had concerns over the reported percentage of fake accounts, or bots, on the website.
As part of its quarterly report and valuation, Twitter releases information on its total users, active users, spam accounts and messages, and other metrics to help investors determine how profitable Twitter really could be.
At the start of the month, they produced another filing, and no one seemed to pay it any attention. It was all the same information they usually release four times a year.
However, two weeks later, Musk announced that Twitter’s self-reported 5% of daily active users that were bots didn’t sit right with him, and he wanted confirmation that the actual number isn’t higher.
While there are questions about bots on the site, they aren’t exactly a new phenomenon. Before making the offer, Musk had access to the reported records of Twitter, and could have asked for clarification or proof at the negotiating table.
So what’s Musk’s real plan here?
Solving the problem with bots is one of the reasons Musk said he wanted to by Twitter. So why are bots now causing him to cast doubts?
One explanation may be the dip in tech stocks. Since his initial offer, the Nasdaq has dropped nearly 18 percent. While Twitter stock has held high, that was mostly thanks to Musk’s offer.
After he tweeted his concerns about bots, Twitter’s stock dropped near 20 points. This may end up just being a method of buying Twitter for a more reasonable price.
Others however, suspect Musk wants to back out of the deal entirely and is using the claims of bots to do it.
That’s not to say it would work.
Whether Musk is trying to get a better price or out of the deal entirely, he’d have to prove a gross misrepresentation on Twitter’s part. Which would be difficult.
The bar for “material adverse change” in most contracts like these is very high. If he can’t and still wants to walk away, Musk would be out $1 billion as a termination fee.
Analysts agree, there’s almost no way for Musk to back out without a hard hit to the bank account, and he’d likely be forced through the process. Only time will tell what happens from here.