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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.
Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of usershttps://www.reuters.com/technology/twitter-estimates-spam-fake-accounts-represent-less-than-5-users-filing-2022-05-02/\u00a0\u2026— Elon Musk (@Elon Musk) 1652435078
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?
Twitter disclosed the % of its audience it believes is bots **FOR YEARS** and @elonmusk had the opportunity to 1) read those filings and 2) examine the numbers before he inked a deal to buy @Twitter (he decided not to do so). \u201cI relied upon Twitter\u201d is legalese and deflection.pic.twitter.com/1gvZl8Ddpm— Tim O'Brien (@Tim O'Brien) 1652500275
The Twitter acquisition is on hold, according to Musk.\n\nPretext is it\u2019s about bots, but I think it\u2019s really because Tesla stock is plummeting. Investors clearly don\u2019t want two companies linked, and it\u2019s a cynical public stunt to stop Tesla\u2019s bleeding.https://www.washingtonpost.com/technology/2022/05/13/musk-twitter-bid/\u00a0\u2026— Brianna Wu (@Brianna Wu) 1652441367
On hold? How does that work?— Molly Jong-Fast (@Molly Jong-Fast) 1652439083
Elon Musk's concerned about Twitter bots and spam, like he believed 82 million people loved him for who he is.— Paul Lander (@Paul Lander) 1652452794
Elon: I will buy Twitter to remove the bots\n\nalso Elon: Twitter deal temporarily on hold because of too many bots— Fintwit (@Fintwit) 1652496666
Twitter in Chaos After the Elon Musk Who Offered to Buy It Turns Out To Be a Botpic.twitter.com/QKKUGQGxOj— Jesus Chrysler (@Jesus Chrysler) 1652581418
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.
Translation: Twitter deal on hold because Elon Musk never really wanted to buy it, and is now looking for reasons to avoid the $1 billion fine.— Andrea Junker (@Andrea Junker) 1652435831
Elon needs a reason to back out.— Send me cash (USPS Only) (@Send me cash (USPS Only)) 1652483816
He's not looking to solve the bot problem. He's looking for a way to save face and exit the twitter deal without paying the termination fee because Tesla stock has taken a dive and he can't come up with the money.— M.D. Lafrance (@M.D. Lafrance) 1652575600
It looks like I was right all along. You never actually intended to buy #Twitter. You were bluffing the entire time. How many Twitter shares did you sell before tweeting this announcement?— Peter Schiff (@Peter Schiff) 1652436826
I\u2019m calling BS on @elonmusk\u2019s late discovery that there might be a lot of bots and fake accounts on twitter. He\u2019s trying to renege on his $44 Billion offer.— Geo Steve (@Geo Steve) 1652647100
I like you but no one is buying this whole "The deal might not go through bc Twitter has bots", man. C'mon.— A.J. Delgado (@A.J. Delgado) 1652496490
Going to be a wild ride watching @elonmusk try to get out of paying the $1 billion he owes @Twitter for breaking up the deal to buy it.https://twitter.com/elonmusk/status/1525049369552048129\u00a0\u2026— David Rothschild \ud83c\uddfa\ud83c\udde6 (@David Rothschild \ud83c\uddfa\ud83c\udde6) 1652530655
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.