Billionaire and tech entrepreneur Elon Musk put his Twitter takeover on hold last week. Tweeting his reservations, he said the proposed $44 billion buyout of the social media platform was “temporarily on hold” due to confusion over exactly what percentage of Twitter user accounts are fake.
Musk is awaiting more precise data on the number of Twitter bots before proceeding with the takeover, and the billionaire’s apparent hesitation has led to the social media giant’s share price tumbling by 16%.
Twitter stock hit $38.06 during New York pre-market trading, well below the $54.20 per share buyout price. This comes on top of a general downturn in technology stocks amid macro-economic concerns over interest rates, inflation and a potential recession in the UK and US.
Despite Twitter stock falling, Musk reaffirmed his interest in completing the deal, tweeting out “still committed to acquisition” after news of the delay broke.
However, the disparity between the value of Twitter shares and Musk’s offer price has led investors to speculate whether the takeover will be completed, with some putting the probability at less than 50%.
In April, Musk had waived standard due diligence in an attempt to fast-track the buyout but now appears to have concerns about whether the price he offered was based on accurate information.
Musk’s final offer was based on the premise that fake Twitter accounts represented under 5% of its total users – if that estimation turns out to be incorrect, it will likely affect Musk’s valuation of the company.
Musk could try and negotiate a lower buyout price if the number of fake users is proven to be more than 5% or walk away altogether.
Should he pull out of the takeover, Musk would be contractually obliged to pay out $1 billion to Twitter as a break-up fee and any damages Twitter could seek would be capped at the same amount.
Musk’s contract with Twitter also includes a clause that could be used to force him into completing the takeover, but this type of clause is rarely implemented, with a negotiated monetary settlement often being the more likely outcome.
Twitter has declined to comment. Despite the very public statements made by Musk, Twitter have remained tight-lipped at every stage.
It appears to be a deliberate strategy not to engage in tit-for-tat accusations in the public domain. The contractual positions also make any posturing by Elon Musk fairly non-threatening.