Yahoo Finance Twitter v. Musk: How a $44B deal turned into a ‘horror show’ that’s just beginning
Elon Musk is trying to kill his own plan to take over Twitter (TWTR) for $44 billion and mold it to his liking. The deal crumbled on Friday when the Tesla (TSLA) and SpaceX CEO announced via a Securities and Exchange Commission filing that he’s terminating the buyout.
So where did the tie-up that Twitter never asked for go wrong? It depends on whom you ask. Musk says he’s walking away because Twitter refused to hand over information about how many bots and spam accounts it has on its platform and how the company calculates those numbers.
Twitter, meanwhile, was reportedly set to turn over data on more than 500 million tweets to Musk in response to his request, according to The Washington Post.
Musk’s decision to dip out of the deal probably isn't just about bots. The broader market has collapsed since his Twitter bid, and the CEO now has to reckon with an arguably rash decision to buy his favored social media platform. Now, Musk finds himself in the unenviable position of an all-but-guaranteed legal fight with Twitter that could cost him a $1 billion break-up fee — or even more in damages.
“Ultimately the problem is you’ve got a man who makes emotional decisions about a lot of things, apparently, in his life and then he has to deal with the consequences. And that’s clearly what happened here,” TECHnalysis research president Bob O’Donnell told Yahoo Finance.
From free speech to bots
Musk’s gripe with Twitter’s bot numbers seemed to be driven by his own experience with spam accounts and cryptocurrency-related schemes.
Musk, a prodigious Twitter user with 100.8 million followers, frequently tweets about cryptocurrencies. So scammers figured they could make phony accounts claiming to be the CEO and use them to bait unsuspecting users into falling for crypto schemes, stealing their money or personal data.
That’s bound to annoy someone like Musk who uses his Twitter account as his main form of communicating with investors and fans alike.
For years, Twitter has reported that spam accounts make up fewer than 5% of daily monetizable active users (dMAU). But Musk repeatedly claimed that number was a dramatic underestimate, saying that as many as 20% of Twitter’s user accounts could be fake.
20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher.
My offer was based on Twitter’s SEC filings being accurate.
Yesterday, Twitter’s CEO publicly refused to show proof of <5%.
This deal cannot move forward until he does.— Elon Musk (@elonmusk) May 17, 2022
Initially, Musk said he wanted to purchase Twitter to reduce the amount of moderation on the platform and deal with the bot issue. But the free speech topic quickly took a backseat to complaints about bots as the stock market began sliding amid fears of rising inflation and the potential for a recession.
Tesla’s stock stumbles
While a good deal of the Twitter conversation has focused on free speech and bots, Wedbush analyst Dan Ives points out that the saga has hurt Tesla shares, which account for the majority of Musk’s wealth.
Since Musk initially revealed his 9.2% stake in Twitter on April 4, shares of Tesla have fallen from $1,145 to $705.11 as of noon Monday — a 38% decline. Twitter stock was down 11.3% at market close on Monday.
“Many investors will continue to view this as a buyers' remorse situation with a market dramatically changing since April and the fake account issue the scapegoat which has turned into a life of its own,” Ives said in a research note.
Musk is heading for a courtroom showdown
Now that Musk says he’s pulling out of the deal, he’s likely headed for a court battle with Twitter’s executives who are dead-set on sticking Musk with the $44 billion bill for the company regardless of whether he wants it.
Twitter has already said it plans to move forward with the deal. Even if it can’t force Musk to buy the social network, he could still have to fork over a $1 billion breakup fee, and potentially more in damages.
“It’s been a circus show from the beginning for this deal and ends in a horror show in July for Twitter,” Ives told Yahoo Finance Saturday. “Musk has left Twitter blowing in the wind and Monday will be a painful day as the Street adjusts to a nasty legal battle ahead with [Twitter] now no longer having the Musk deal. [There are] some dark days ahead and for Musk, he does not come out smelling [like] roses. It’s a black eye moment for him the way this fiasco was handled.”
All of that is to say that while we’re now moving to the next chapter in the Musk-Twitter saga, there are still likely thousands of pages to go.
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Got a tip? Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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