Musk sent Twitter shares falling more than 15 percent in pre-market trading after stating that his acquisition of Twitter is “temporarily on hold” until he gets more information about the number of false or fake accounts on the social media network.
“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5 percent of users,” Musk wrote in a tweet on Friday morning prior to the opening of the markets.
“Still committed to acquisition,” Musk, the world’s richest man, later stated on Twitter following reactions.
The announcement came weeks after the Tesla’s CEO reached a deal with Twitter to take the company private for $54.20 a share, putting the firm’s value at about $44 billion.
Twitter’s stock is currently trading below $42, which is roughly a 25 percent discount to the $54.20 purchase price.
Meanwhile, Tesla (TSLA) stock has risen 7 percent in response to the news. The stock also reacted to the earlier media reports that Musk is in talks to secure more equity funding for his takeover deal, avoiding the need for any margin loans guaranteed by his Tesla shares.
According to market analysts, the likelihood of a takeover is decreasing following Musk’s announcement. However, because Twitter currently trades at a substantially higher valuation multiple than Facebook, they say, investors will be disappointed if the acquisition falls through as shares will collapse.
Actual user numbers could affect the valuation of the company.
Twitter claims that bots or fake accounts make up less than 5 percent of the platform’s users. Some people, however, question these numbers.
Former congressman Devin Nunes, who is now CEO of Truth Social former President Donald Trump’s social media rival to Twitter, said last month on Fox Business that bot and fake accounts on Twitter are far more common than most people know.
Rumble’s founder Chris Pavlovski repeated these claims, adding that Musk’s move is “extremely smart.”
Truth Social is using Rumble’s cloud infrastructure.
“He needs to do his due diligence” on user numbers, Pavlovski told FOX Business’ Maria Bartiromo on Friday.
When comparing user engagements on Twitter and Truth Social, he noted that “it’s very obvious that there’s something happening” on Twitter.
There’s an “enormous gap” in terms of engagements, he said. “You would see significantly more engagement on Truth than you would see on Twitter.”
Social bots are accounts, mostly on Twitter, that appear as humans but are actually produced by computer software.
According to Onur Varol, a researcher at Northeastern’s Network Science Institute, a single person can sometimes be the “master” of an army of hundreds of thousands of bots.
“We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the first quarter of 2022 represented fewer than 5% of our mDAU [monetizable daily active users] during the quarter,” Twitter announced in a filing (pdf) earlier this month.
After learning that it had overestimated its user base, Twitter also “restated those figures to slightly lower levels going back to the fourth quarter of 2020,” Morningstar’s Ali Mogharabi stated in a recent research report.
But not everyone is convinced that the deal has been put temporarily on hold.
“Deals like this don’t work that way,” Aron Solomon, chief legal analyst, Esquire Digital, told The Epoch Times. “I’m not sure how the buyer of a $43 billion asset tells the seller ‘I’m going to grab an espresso and think about this a bit. Please hold.'”
That said, this is not a typical hiccup, Solomon stated. He said Musk’s tweet came after the news of several executives and managers were fired.
Since Elon Musk purchased a 9.2 percent stake in Twitter, and then later announced intentions to acquire the social media platform, it has been a volatile situation.
FTC, SEC Launch Probes
In addition to internal upheaval at the San Francisco-based company, the tech billionaire has faced an onslaught of regulatory hurdles.
The latest wrinkle in this story is the Securities and Exchange Commission (SEC) launching a probe into Musk’s trading involvement in Twitter.
Musk had initially purchased 5 percent of Twitter shares on March 24, but he did not disclose this information within ten days. It is believed that if he had immediately revealed his 5 percent stake, investors would have rushed into the tech company and bought shares.
Market experts estimate Musk would have saved approximately $140 million by not disclosing his sizable purchase.
It is unclear if SEC will pursue this development any further. In 2008, the SEC sued him over allegations of making false statements on Twitter about gathering enough funding to take Tesla Motors private. He settled the case by paying a $20 million fine, but Musk denied that he lied and noted he felt pressured to settle the SEC investigation.
Musk is facing another Federal Trade Commission (FTC) investigation. The FTC is determining if Musk violated a law that mandates individuals and businesses report immense transactions to anti-trust enforcement groups, according to The Wall Street Journal. Once the filing is submitted, investors wait a minimum of 30 days before scooping up more shares.
Activist investors are required to adhere to the anti-trust filing rules if they acquire shares that surpass a certain threshold and their assets are north of $20 million. Passive investors are exempt from this rule if they hold less than 10 percent of shares and do not intend to direct day-to-day business decisions.
If Musk is found guilty of this violation, the FTC could slap a fine of up to $43,792 per day.
Both Twitter and Tesla shares have been on the decline this week, falling 17 percent and 8.5 percent, respectively.
A Brief Timeline of Musk’s Twitter Takeover
On April 25, Twitter accepted Musk’s proposal of $54.20 per share in cash, which put the firm’s value at about $44 billion.
For this acquisition deal, Musk secured $25.5 billion in loans, backed in part by a portion of his stake in Tesla. He had also promised to provide nearly $21 billion in cash.
A securities filing on May 5 showed that Musk secured new financing from a group of investors, including a Saudi prince and Oracle co-founder Larry Ellison for his deal.
With the new money, the margin loan amount backed by Tesla shares will be reduced to $6.25 billion from $12.5 billion; the equity commitment has now increased to $27.25 billion from $21 billion, according to the filing.
Should Elon Musk abandon the deal, he would be legally required to pay a $1 billion termination fee. Twitter would also be forced to pay a $1 billion breakup fee if it chooses to exit the deal for a better offer.
Late last month, Twitter unveiled the first-quarter results (pdf), and the numbers were mixed. Earnings per share were 4 cents, topping the market estimate of 3 cents. Revenues were $1.2 billion, below the expectation of $1.23 billion. Monetizable Daily Active Users (mDAUs) totaled 229 million, topping projections of 226.9 million.
Musk On Donald Trump, Joe Biden
On the political side of the issue, Musk has remarked on President Joe Biden and Trump.
Earlier this week, Musk revealed that he would reverse Twitter’s permanent ban on Trump.
“I think that was a mistake because it alienated a large part of the country and did not ultimately result in Donald Trump not having a voice,” Musk said virtually at a Future of the Car summit on Tuesday. “So I think this may end up being frankly worse than having a single forum where everyone can debate. I guess the answer is that I would reverse the permanent ban.”
Musk would also tweet Thursday that Biden was only elected because the country “wanted less drama.”
“Biden’s mistake is that he thinks he was elected to transform the country, but actually everyone just wanted less drama,” Musk tweeted, adding that he thinks a “less divisive candidate would be better in 2024.”
From The Epoch Times