Billionaire Elon Musk has temporarily put a hold on the $44 billion purchase of social media platform Twitter. He made this known on Friday stating that this was due to “pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.”
Though he said he was still committed to the acquisition, he would get his team to do a random sample of 100 followers of the social media platform. He also added that other people should repeat the same process and see what they discover.
When asked to elaborate on the process people should take in the process of finding out the real percentage of scam/spam/bot accounts, he said;
Any sensible random sampling process is fine. If many people independently get similar results for % of fake/spam/duplicate accounts, that will be telling. I picked 100 as the sample size number, because that is what Twitter uses to calculate <5% fake/spam/duplicate.
After the news on the temporary pause, Twitter shares initially fell more than 20% in premarket trading. However the shares regained some ground after he sent the second tweet saying he remained committed to the deal
The shares were down 9.6% to $40.71 in trading on Friday, still a steep discount to the $54.20 per share acquisition price.
It is surprising that he is asking for pause in the acquisition deal as he was the one that waived his right for due diligence in an effort to get the San Francisco-based company to accept his “best and final offer.” So he cannot argue that Twitter somehow misled him.
Can Elon Musk ask for renegotiation of his offer of $54.20 per share?
Even though Elon Musk says the reason for the pause is presence of a high percentage of spam and fake accounts, some people think it is due to the fact that widening gap between the offer price of $54.20 and the price of $40.72.
Since Musk made the offer to acquire Twitter, tech stocks have dipped amid investor concerns over inflation and a potential economic slowdown.
Elon Musk may ask to renegotiate as his offer price is way less than the current value.
There is precedence for renegotiation. A lot companies had to reprice acquisition agreements during the COVID-19 pandemic. A notable one is the French retailer LVMH acquisition deal of Tiffany & Co. Eventually Tiffany agreed to lower the acquisition price by $425 million to $15.8 billion.
Musk can threaten to walk away from the deal unless Twitter’s board agrees to reopen negotiations. However he will be liable to pay a $1 billion break-up fee if he does this. Twitter would have to sue to get more than that in damages or try to force Musk to complete the deal.
As we await to hear Musk’s final decision, he recently tweeted that Twitter legal team contacted him to complain that he violated their NDA by revealing the bot check sample size was 100!
On Sunday, he tweeted that he is yet to see *any* analysis that has fake/spam/duplicates at <5%.
I do suspect that there is more drama in the coming days.
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