The news initially cut Twitter shares by more than 20% in pre-market trading. Two hours after his first tweet, Musk posted that he was “still determined to acquire”.
But the measurements were not verified independently and it was acknowledged that the actual number of fake or spam accounts may be higher.
Twitter has been a problem with spam for many years, and the company has previously acknowledged that reducing fake and malicious accounts will be a key factor in its growth. It is not clear why Musk withdrew from the deal due to recent revelations.
Musk “turned this Twitter circus show into the 13th horror show on Friday,” Dan Ives, a technical analyst at Wetbush Securities, wrote in a note to clients early Friday.
If the deal is canceled, Musk will have to pay $ 1 billion in breakup fees to Twitter.
“The Street considers this deal to be 1) falling, 2) Musk bargaining for a lower contract price, or 3) Musk leaving the deal with a $ 1 billion breakup fee,” Ives wrote. “Many will see this as a musk as a way out of this deal in a highly changing market, using these Twitter filing / spam accounts.”
Shares – especially technology – have fallen sharply since Musk and Twitter reached an agreement to buy the company almost three weeks ago.
Violation of convention
The way Musk announced the termination of the deal – in a tweet – was even more unusual, at least by normal corporate merger and acquisition standards.
Acquirers of a company usually act with caution by reviewing the financial and privacy information of the company before concluding a contract. In that process, they may find information reviewing the contract or its valuation, but usually such disclosure will be filed with the Securities and Exchange Commission.
“Usually, we look at some of the types of filings that come first, a correction to the previous filings of the agreement, namely, ‘We have found some information in the process of proper diligence and we are reviewing our acquisitions,'” said Josh White, financial assistant professor at Vanderbilt University and former finance economist at SEC. Said the expert.
“It happens when you access books and access to privacy information. A tweet that usually does not happen,” White said.
The unusual move may not be significant enough to guarantee SEC action, but could attract the attention of Twitter’s lawyers, White said. As part of the deal, Musk agreed to consult with Twitter, and to release public statements about the deal and to avoid tweets that would “defame the company”, according to filings with the SEC. However, Twitter’s board wants to execute the deal because of its strong rating compared to the company’s current share price.
But if the deal breaks down, “I expect Twitter’s current shareholders to bring a lawsuit,” White added, adding that Musk’s actions hurt them by lowering the share price.
Twitter did not provide a request for comment in Muskin’s tweets on Friday.
Doubt from the beginning
Although Musk has been working to secure funding for the acquisition, doubts have swirled over whether the deal will happen since Twitter’s team accepted the offer on April 26.
Wall Street analysts are skeptical of Musk’s ability to buy Twitter – at least $ 54.20 a share. The consensus target price was below $ 52, and most people put a “hold” rating on the company’s shares.
Musk sold a significant number of Tesla shares to finance his Twitter deal, putting pressure on the carmaker’s stock. Since most of his Tesla shares have already been made elsewhere, he would not have had much of a mattress if he had to add more funds to complete the Twitter acquisition.
Musk’s plans for Twitter
Musk provided some details about his plans for the social media company, although he often talked about bot accounts promoting spam content. He also says the company is very quick to remove accounts that violate its content-rating rules.
Twitter CEO Barack Agarwal sent a series of tweets on Friday afternoon, acknowledging the head shake at the company the previous day.
“Some people are asking why the ‘lame-duck’ CEO will make these changes if we are acquired anyway,” Agarwal said. “When I expect the deal to end, we must be prepared for all circumstances and always do what is right for Twitter. I am responsible for guiding and directing Twitter, and our job is to build a strong Twitter every day.”
-— CNN Business’s Clare Duffy and Allison Morrow contributed to this article.
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