Elon Musk’s Twitter takeover soap opera keeps twisting and turning.
The billionaire tweeted last week that the US$44bn takeover of Twitter was temporarily on hold due to his concerns about the number of spambots the social media giant reported.
Having taken some time over the weekend to mull things over, the Tesla boss affirmed he would not go ahead without proof of the number of bots on the site.
Musk insists that he remains committed to a deal, but commentators and analysts are more sceptical about his true intentions, with many pointing to numerous run-ins that have landed him in deep water (examples of which include his ongoing frictions with the Securities and Exchange Commission).
Musk reckons the number of fake Twitter users may be closer to 20%, if that’s proven, what happens next?
Maybe Musk backs out
The rocketman may simply decide that the deal is no longer viable.
He could walk away for a fee of US$1bn, which is hardly pocket change even for the world’s ‘richest man’, according to Forbes' latest list.
Musk’s wallet would be US$44bn heavier if he walked away.
But, it isn’t actually that simple.
The break-up clause that the two parties agreed on last month doesn’t simply let Musk drop out on a whim.
According to CNBC, which quotes a senior mergers and acquisition lawyer, Musk can only walk away paying only the US$1bn break fee for one of two reasons.
Firstly, if something outside the control of the parties prevents a deal from moving forward, such as regulatory reasons or third-party financing concerns.
The other would be if the buyer believed there’s an element of fraud from the seller in reporting facts and important details, assuming that incorrect information has a ‘material adverse effect.’
Whether the number of spambots meets the criteria of having a ‘material adverse effect’ remains an open question, according to the legal and finance pundits following the deal.
Neil Wilson, an analyst at Markets.com, isn’t buying Musk’s latest antics.
“It does seem very disingenuous to go on about the bots when he said he’d tackle them and it’s all in the Twitter filings that they are 5% but could be more.”
“It all looks pretty fishy,” Wilson added.
Wilson also believes that the South African entrepreneur is looking for a way to back out was always a possibility from the get-go.
“I’d said at the start there was a risk it was all a smokescreen and he’d find some due diligence reason to squirm out of it.”
Revised terms
On the other hand, Musk could also be posturing for a cheaper deal. He said as much himself on Twitter (obviously), saying that a deal at a lower price is “Not out of the question.”
That’s supported by analysts at Wedbush, the US-based investment firm, who believe that the issue over the bots is likely more of a scapegoat to renegotiate.
“Our view is while Musk is committed to the deal the massive pressure on Tesla’s stock since the deal, a changing stock market/risk environment the last month and a number of financing factors has caused Musk to get cold feet,” the analysts say.
Tesla has lost nearly US$300bn since the deal was announced, and the analysts believe that there is currently less than a 50% chance the deal gets done under the current terms.
Popcorn at the ready
Where the deal goes from here is anyone’s guess.
Musk knows Twitter is in a tough position in the sense that no other multi-billionaire will swoop in at the last hour for a price close to what Musk offered.
Wedbush also believes that if it doesn’t accept the lower offer, the stock will likely to below US$30 a share in an already “shaky market backdrop.”
Regardless of what does eventually happen, this story is far from over, and everyone should keep the popcorn handy as this soap opera is yet to run its course.