Elon Musk temporarily suspends his takeover bid for Twitter
Elon Musk announced on May 13 in a tweet that the takeover of Twitter for 44 billion dollars was suspended pending details on the proportion of fake accounts on the social network. Faced with the many reactions, he said he was ” still determined to make this acquisition “.
PRETEXT OR SERIOUS CONCERN?
This is a report, published by Reuters on May 2, which attests that fake accounts represent less than 5% of the number of users of the social network. Nothing really new a priori. So why does Elon Musk want to make sure that number is right? Unclear if this is a serious concern, a strategy to get out of the deal, or a way to drive down Twitter‘s stock price to renegotiate a lower purchase price to the original amount.
Regarding the first hypothesis, verifying that fake accounts do not represent more than 5% of the total active accounts on the social network allows Elon Musk to verify his monetization potential. Indeed, the company estimates at 229 million its number of daily “monetizable” users, that is to say, exposed to advertising, during the first quarter of 2021. If it turns out that more than 5 % of accounts are fake, so revenue from advertising would be less. Elon Musk made the deletion of fake accounts his hobbyhorse, it is surprising that he is not informed before… Especially since the question is familiar to him.
LEAVE EVEN IF IT MEANS PAYING A BILLION DOLLARS
Second hypothesis: the billionaire uses the pretext of the percentage of false accounts to renegotiate the price or to cancel the buyback operation. In the second option, he will have to pay a billion dollars, according to the forfeiture clause provided for in the agreement signed with the board of directors of Twitter.
As a reminder, Elon Musk has pledged to contribute up to 21 billion personal contributions to the takeover. However, its financial health is not the most stable, as it depends heavily on Tesla's share price. According to the Wall Street Journal, he is currently looking for additional investors to raise the 44 billion dollars needed to buy Twitter. Indeed, he said he would offer $54.20 per share. But the price has since fallen (the Nasdaq, in general, having collapsed), hovering below $50 for several weeks.
One of the issues seems to be that the fate of the operation is conditioned on Tesla's health. Indeed, the CEO plans to borrow against part of his stake in Tesla to finance the agreement. However, after selling 4 billion shares, the automaker's market capitalization fell. Investors are worried about the risk of seeing Elon Musk forced to reduce his stake to complete the operation. With Tesla's market valuation extremely high relative to its competitors, concerns about its stability are nothing new.
SEVERAL INVESTIGATIONS ARE IN PROGRESS
In any case, the behavior of Elon Musk may not please the American authorities. According to the WSJ, he would again be in the sights of the Securities and Exchange Commission (SEC), the American federal agency responsible for the regulation and control of the financial markets. She would investigate the late disclosure of her stake of more than 5% in the capital of the social network. This strategy would have allowed him to buy more titles thereafter without alerting the other shareholders and masking his intentions to acquire the social network.
At the same time, Elon Musk must face a class-action lawsuit launched on April 12 for the management of its initial investment. The plaintiff, a shareholder of Twitter, accuses him of having notified his stake on April 4 when he should have done so by March 14 at the latest, under US federal law. He assures that this delay would have caused a loss of earnings for the investors and would have allowed the offender to enrich himself at their expense.
While the sale is not yet effective, Parag Agrawal, CEO of Twitter, has begun the major cleaning promised by Musk and has dismissed Kayvon Beykpour, head of product, and Bruce Flack, general manager of revenue. Recruitment and replacements, with the exception of ” critical positions “, have also been frozen since this week, said Adrian Zamora, The Verge. The objective: is to reduce “non-labor costs to [prove] that we are responsible and efficient “.