Tesla and SpaceX CEO Elon Musk signed an agreement with Twitter in April where the billionaire agreed to buy the company for $44 billion and take it private. However, it has been over a month since the agreement was signed and the deal has not closed yet. Moreover, with each passing week, Musk is becoming unsure of the whole deal. The billionaire has openly conveyed his discomfort with the deal and has suggested that he wants to negotiate a cheaper price or even walk away from it entirely. Recently, Musk threatened to walk away from the Twitter deal which the Tesla CEO is gradually losing interest in acquiring. Lawyers working for the billionaire have made the threat in a letter to Twitter accusing the company of refusing to provide him information about “spam bot” accounts. These bots are turning out to be a major issue for the billionaire who earlier declined an opportunity to examine Twitter’s internal data a few months ago.
Why Musk is having two minds about the deal
Elon Musk has lost interest in the Twitter deal since he signed it in April for multiple reasons. The social media company has decided to stick to the $54.20 per share price that was agreed upon in April. However, Twitter’s stock has fallen more than 25% below that figure since early May. Many investors have also speculated that the deal won’t go through if the gap between the deal price and the actual share price increases or even remains the same.
Initially, Musk planned to finance the $44 billion deal using stock from the electric vehicle company. He was willing to use Tesla stocks as collateral for loans that he would require to purchase Twitter shares as per the deal. Since then, he has adjusted his plans to include more investors, including the ones who have Twitter shares.
Moreover, Tesla’s stock prices have also slumped since Musk disclosed himself as Twitter’s largest stakeholder in April. Elon Musk has maintained his world’s richest person status, but the 35 per cent decline in the stock prices has deeply affected the billionaire’s wealth. Additionally, the decreasing share price has also reduced the amount Musk was willing to borrow against his Tesla holdings. The company’s rules restrict Musk from borrowing more than 25% of the value of his Tesla stake. This means Musk can now raise around $13.5 billion against his shares and the amount doesn’t include stock options that the company’s CEO has exercised or loans he may have repaid. As per FactSet, Elon Musk is the owner of about 163 million Tesla shares that are valued at $114.7 billion.
What are Spam bots
Spam bots are programs that post automated tweets, either for information or entertainment. For example, the US government’s “quake bot” tweets the details of any ongoing seismic events. However, Musk has been openly protesting against these bots they can be used to promote sales pitches or to increase the influence of a person or a cause.
The “bots” problem has turned out to be a huge one for the billionaire as he is one of the most active celebrity users and fake accounts promoting cryptocurrency scams often mimic his name and likeness. Musk has even mentioned that it can also be a problem for advertisers who take out ads on Twitter depending on the number of real people they are expecting to reach.
Twitter’s spam bots and the process that the company uses to count them have become a major issue in the deal. However, Twitter has already disclosed that the platform has multiple “false or spam accounts” and the company estimates that are less than 5% of its 200 million+ daily active users.
Meanwhile, Musk insists that Twitter is undercounting these bots and has demanded the company’s internal data for examination. The legitimacy of demanding such information after declining his right to conduct “due diligence” on Twitter’s internal accounting and operations is not clear yet. However, some experts think that a court might be needed to clear this decision.
What happens if the Twitter deal is called off
According to experts, Musk may not be able to place the deal on hold unilaterally for too long. The billionaire can be charged with a $1 billion breakup fee if he walks away from the deal. Moreover, Twitter can also sue Musk and force him to complete the acquisition on the agreed terms.
However, a “material adverse effect,” caused by Twitter can allow Musk to get out of the deal, the agreement mentions. This “effect” is defined as a change that will negatively impact Twitter’s business or financial conditions. This might be the reason for Musk to focus on the spam bot problem, although he decided not to peek under the company’s hood before signing the deal.