Elon Musk said Tuesday that his $44 billion bid to buy Twitter “cannot move forward” until the social media company can prove no more than 5 percent of its users are fake, seizing on an issue that might enable him to pull out of the deal.
Musk polled his nearly 94 million followers on whether Twitter’s figure was accurate, as he searched for proof for his claim that he was misled.
Twitter claims that >95% of daily active users are real, unique humans. Does anyone have that experience?— Elon Musk (@elonmusk) May 17, 2022
Despite speculation by some users on Twitter that Musk is running afoul of Securities and Exchange Commission rules by tweeting about the deal, securities experts said he was within his rights to raise the bot question publicly.
“As an investor, there’s no prohibition against him speaking publicly about his investment and his intentions unless there’s some restriction that may be imposed by virtue of a nondisclosure agreement or some other contractual element associated with the transaction,” said Jacob Frenkel, a former SEC enforcement lawyer now with the law firm Dickinson Wright.
Frenkel said the SEC might take an interest if it were determined that Musk’s assertions about bots were knowingly false. “I just don’t think there’s any evidence of that,” he added.
Musk also indicated he believes the SEC should investigate the accuracy of Twitter’s filings about bot accounts. After a Twitter user suggested an investigation, Musk posted, “Hello, @SECGov, anyone home?”
Meanwhile, Twitter filed a proxy statement Tuesday requesting that shareholders approve the deal at the $54.20-per-share price Musk offered, saying in a news release that it was “committed to completing the transaction on the agreed price and terms.” The company has long maintained that bogus accounts amount to 5 percent of Twitter’s users, but it also has acknowledged in securities filings that the true number “could be higher.”
20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher.— Elon Musk (@elonmusk) May 17, 2022
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.
Musk has signaled that his focus on Twitter bots is part of an effort to find a way out of the deal before it closes — without remaining responsible for the agreement already in place.
If Musk can show he was misled about the number of fake accounts, it would give him the option of walking away through a “material adverse effect” clause, though legal experts have expressed doubt about the strategy. The terms of the agreement carry a $1 billion termination fee, and his withdrawal could trigger a messy legal battle, some experts have said.
The bots tussle marks the latest curveball in the quest for the influential social media platform, where Musk’s 93.7 million followers make him one of the site’s most popular users.
At a conference in Miami on Monday, Musk said buying Twitter at a lower price was not “out of the question,” an indication that he was distancing himself from the $44 billion offer announced April 25.
Tesla shares, a major source of Musk’s massive wealth, have dropped more than 30 percent since Musk first disclosed his minority ownership in Twitter in April, wiping roughly $300 billion off the EV maker’s market capitalization, according to Dan Ives, managing director of Wedbush Securities. Though he’s still the world’s richest man by Bloomberg estimates, his $213 billion fortune is down nearly $57 billion from the start of the year.
The deal has heaped pressure on Tesla’s stock in a risky market environment, Ives said, and that in concert with other financing factors has “caused Musk to get cold feet.” He noted that the bot question is not new but rather is probably “more of a scapegoat to push for a lower price.”
“The stark reality for Twitter is that no other strategic/financial bidder will come near this deal and Musk knows that,” Ives said in commentary Tuesday.
Twitter’s stock has already given up all the gains it made in light of the deal, sliding more than 8 percent Monday before recovering about 2.5 percent Tuesday.
“If the merger is not completed, and depending on the circumstances that cause the merger not to be completed, the price of our common stock may decline significantly,” Twitter warned in the proxy statement.
Tesla’s shares climbed about 5 percent Tuesday.
The issue of bots — accounts that often peddle cryptocurrency scams or other schemes — prompted Musk to declare the deal on hold last week.
In a thread on Twitter’s methodology, chief executive Parag Agrawal said Monday that the site suspends more than 500,000 spam accounts daily. He said its estimate of bots is based on reviews, conducted by people quarterly, of thousands of accounts that it counts as active and that are randomly sampled.
Musk responded to the thread with a poop emoji.
Musk said at Monday’s conference that he thought the proportion of bots is higher than what Twitter has announced.
“It’s a material adverse misstatement if they, in fact, have been vociferously claiming less than 5 percent of fake or spam accounts but in fact it is four or five times that number,” he said. “This is a big deal.”
The comments appear to refer to a contract clause that could allow him to back out in case of an occurrence that significantly changes the business.
To fund his push to take Twitter private, Musk had committed billions of dollars of his net worth, which the Bloomberg Billionaires Index estimates to be $213 billion. More recently, as the value of Tesla and other tech stocks plummeted, he sought more investors to lower his equity commitment in the deal, The Washington Post has reported.
Musk has said he wants to remove bot accounts after acquiring the company and promote “free speech” on Twitter, a view some employees worry could hurt safety policies put in place to protect users online. Musk’s plans include restoring the account of former president Donald Trump, who was banned after the Jan. 6, 2021, attack on the U.S. Capitol.
Last week, Agrawal announced a hiring freeze for Twitter and fired the company’s heads of revenue and consumer product. In a memo to employees first reported by the Verge, Agrawal, who has called himself a “lame duck CEO” amid Musk’s bid, cited a “less favorable” global economic backdrop and said the company had failed to hit “intermediate milestones” for audience and revenue goals it laid out at the pandemic’s nascency.
“And, of course, we are in the middle of an acquisition and we don’t yet know the timing of the close,” Agrawal noted in the memo. “In order to responsibly manage the organization as we sharpen our roadmaps and our work, we need to continue to be intentional about our teams, hiring and costs.”
Tory Newmyer contributed to this report.