Was it all too good to be true? And by “it,” do we mean Twitter’s declared value?Elon Musk must suspect that he could have paid too much to buy out the social media platform, and declared the deal frozen for the moment while he finds out:
Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of usershttps://t.co/Y2t0QMuuyn
— Elon Musk (@elonmusk) May 13, 2022
Elon Musk said Friday that his planned $44 billion purchase of Twitter is “temporarily on hold” pending details on spam and fake accounts on the social media platform, another twist amid signs of internal turmoil over the proposed acquisition.
In a tweet, the Tesla billionaire linked to a Reuters story from May 2 citing a financial filing from Twitter that estimated false or spam accounts made up fewer than 5% of the company’s “monetizable daily active users” in the first quarter.
“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk said, indicating he’s skeptical that the number of inauthentic accounts is that low.
It wasn’t clear whether the issue could scuttle the deal.
This seems an odd issue for a roadblock at this point. Musk is at present the largest single shareholder in a publicly traded company. One would think that Musk would have investigated this specific issue before building his bid, as this would be a critical calculation to make about the platform’s value. Musk bought into that position fast, of course, and had to make a quick decision about whether to just secure a board seat or go for the whole enchilada.
But when you decide to spend $44 billion, normally you’d check the books first. That’s especially true when some of that $44 billion comes in checks from Morgan Stanley and other investors. Morgan Stanley in particular would have wanted to see very specific data on valuation, given that they’re providing Musk with $25 billion in credit to pull off this buyout. That kind of risk isn’t done on wild-ass guesstimates.
One analyst called the tweet “bizarre,” and perhaps evidence that Musk may have lost interest in the deal and is looking for a way out:
Stock in both Twitter and Tesla swung sharply in opposite directions, with Twitter’s stock tumbling 18%, and Tesla, which Musk had proposed using to help fund the Twitter deal, jumping 5%.
Calling Musk’s tweet “bizarre,” Wedbush Securities analyst Dan Ives said, “The implications of this tweet will send this Twitter circus show into a Friday the 13th horror show as now the Street will view this deal as 1) likely falling apart, 2) Musk negotiating for a lower deal price, or 3) Musk simply walking away from the deal with a $1 billion breakup fee.”
Gizmodo’s Jody Serrano says told you so, and wonders whether the meltdown in the crypto markets this week may have rattled Musk:
While taking a moment to investigate whether the platform you’re buying indeed has enough users to make it worth your while is no doubt sensible, it seems a bit off that Musk is bringing this up now, or more than two weeks after he announced his intention to buy the company. Plus, it’s not as if Twitter were hiding this information. It reported the numbers in filings on May 2.
Furthermore, it’s not as if Musk wasn’t aware of the spam accounts on the platform. He has frequently rallied against them and made “defeating the spam bots” one of his priorities in the very press release announcing his deal on April 25.
Considering cryptocurrency’s recent nosedive—Musk is a big crypto fan and owns crypto, though how much isn’t publicly known—and Tesla losing 20% of its value since its CEO announced that he was going to buy his favorite digital toy, Musk’s pause is not surprising from a financial standpoint. It is ironic from his personal standpoint though, since he’s said he “doesn’t care about the economics at all” when it comes to buying Twitter.
When you have $277 billion in personal wealth, you can afford to not care about the economics. On the other hand, no one ever got to be a multibillionaire by not caring about the economics. That was clearly bravado, not a credo. The fact that Musk brought in Morgan Stanley shows that this deal certainly was about the economics, as that credit structure would require a very careful adherence to the economics as soon as the deal executed.
Something doesn’t add up here. Perhaps it really is just as simple as Twitter’s valuation, and maybe this will be only a temporary pause, as Musk characterizes it. Maybe the economics of a significantly leveraged buyout finally caught up to Musk. Or perhaps Musk hoped to spook Twitter into making some changes on the cheap and never intended to execute the deal, in which case he’s going to be on the hook for a break-up fee of one billion dollars. That would be the world’s most expensive prank, if that’s how this settles out.
Update: For what it’s worth, Musk added that he still intends to buy Twitter:
Still committed to acquisition
— Elon Musk (@elonmusk) May 13, 2022
We’ll see. Nothing like a little suspense, eh?