Elon Musk Threatens to “Terminate” Twitter Deal, Shares Silly Reason He Shouldn’t Pay $1 Billion Penalty

Wren Graves
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The post Elon Musk Threatens to “Terminate” Twitter Deal, Shares Silly Reason He Shouldn’t Pay $1 Billion Penalty appeared first on Consequence.

Elon Musk is threatening to “terminate” his $44 billion Twitter takeover, which is a problem, because his original purchase agreement included a $1 billion penalty if he pulled his offer. So the Tesla founder seems to be preparing the argument that the whole deal should be voided. He claims that Twitter is lying about the number of users who are “fake/spam accounts,” which is also a problem, because he already waived his right to due diligence. But since he has nothing to lose but pride, Musk is forging ahead anyway; his lawyer sent a letter to Twitter on Monday accusing them of “actively resisting and thwarting his information rights” regarding spam accounts.

Musk began laying the groundwork for this strategy in mid-May, tweeting that in his experience about 20% of Twitter’s use base are “fake/spam accounts,” and that the true number “could be *much* higher.”

Twitter CEO Parag Agrawal responded, “Our actual internal estimates for the last four quarters were all well under 5%.” He added, “We don’t believe that this specific estimation can be performed externally, given the critical need to use both public and private information (which we can’t share). Externally, it’s not even possible to know which accounts are counted as [monetizable Daily Active Users] on any given day.”

Musk’s new letter says Twitter sent him a June 1st message further explaining their methodology. But the billionaire is dissatisfied with the analysis: “Mr. Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover.”

That “own analysis,” is a matter of some contention. Musk wrote on May 13th that, “To find out, my team will do a random sample of 100 followers of @twitter. I invite others to repeat the same process and see what they discover.” When many people argued that this was not exactly scientific, he added, “Pick any account with a lot of followers,” and “Ignore first 1000 followers, then pick every 10th. I’m open to better ideas.”

Evidently he did not think Twitter’s ideas counted. The letter ended on a threatening note: “This is a clear material breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement.”

The number of fake accounts on Twitter is clearly relevant to its profitability, but that makes Musk’s behavior harder to understand, not easier. As previously stated, he waived his right to due diligence in order to close the sale faster. Besides that, for years now Twitter has been claiming in SEC filings that about 5% of its user base are spam accounts.

Twitter did recently revise downwards its estimate of total users. The company said that it had double-counted between 1.4 and 1.9 million accounts after introducing a feature that allowed people to link accounts three years ago. But 330 million people still use Twitter, meaning the company’s estimate was off by about half of one percentage point. Besides this minor correction, nothing has changed since Musk’s offer was accepted.

For that reason, many people have looked elsewhere to explain his sudden squeamishness. Daniel Ives, an analyst with Wedbush, said in a note to investors, “Many will view this as Musk using this Twitter filing/spam accounts as a way to get out of this deal in a vastly changing market.”

That’s a reference to Tesla’s plummeting stock price. Musk is partially financing the Twitter purchase with a margin loan against Tesla, and that, coupled with a bearish tech market and more Tesla recalls, has pushed Tesla’s stock price down by over 30% since the deal was announced. Musk may be the richest man in the world, but as much as 70% of his wealth is in Tesla stock, according to an analysis from last year. He might not be able to afford $44 billion for a social media platform right now, especially one as fitfully-profitable as Twitter.

Even as Musk continues to pursue this fake/spam account strategy, his overall goals remain unclear. While it looks like he’s hoping to void the deal, he might also be trying to renegotiate the purchase price to something a little easier to swallow. It’s unknown if Twitter will be interested in that, or if they’d rather take his $1 billion penalty and go on their merry way.

Regardless of what happens with Twitter, Musk may be facing larger problems. A new report revealed that his company SpaceX paid $250,000 to a flight attendant who accused him of sexual misconduct. If all of his business ventures go south, perhaps he can depend on the largesse of his sister, who recently launched a romance and erotica streaming platform.

Elon Musk Threatens to “Terminate” Twitter Deal, Shares Silly Reason He Shouldn’t Pay $1 Billion Penalty
Wren Graves

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