Twitter (TWTR) Posting Losses Following Report That Musk’s Buy Out Bid Is Unraveling
4:10 pm Friday, July 08th, 2022
Elon Musk’s $44 bln bid to acquire Twitter (TWTR) has been a fragile situation from the start, and now it appears that the deal is on the brink of breaking apart. After yesterday’s close, The Washington Post reported that Musk’s attempted acquisition of TWTR is in jeopardy, casting more doubt that the pending transaction will be completed. According to The Washington Post, the main stumbling block still centers on TWTR’s fake accounts and Musk’s distrust of TWTR’s verification of those accounts.
The drama surrounding Musk and TWTR’s fake accounts unfolded on May 13 after Musk tweeted that the acquisition was “temporarily on hold.” His reasoning for the sudden change of heart was based on recently conducted analysis showing that spam/fake accounts represent less than 5% of users. According to Musk, this analysis significantly underestimated the number of fake accounts, with the Tesla (TSLA) CEO estimating that fake accounts represent up to 20% of the total. Even though it would be legally difficult and expensive for Musk to carry out, thanks to a $1 bln breakup fee, he threatened to walk away from the deal unless TWTR provided more data regarding its valuation of fake accounts.
In a deal that’s rife with skepticism, some people are questioning Musk’s sincerity on the fake account issue. With TWTR shares currently trading 32% below his $54.20/share offer price, it’s not a major leap to assume that Musk is either looking for a way out or is trying to leverage the fake account situation into a bargaining chip to renegotiate the purchase price. Aside from the back-and-forth on the spam concern, there are a couple other key items to consider.
Macroeconomic headwinds have exacerbated TWTR’s recent troubles, as illustrated by The Wall Street Journal’s report this morning that the company laid off 30% of its talent acquisition team. Businesses are reining in their advertising spending, creating top-line pressures for social media companies.
It’s nearly a forgone conclusion that Musk will not acquire TWTR for $54.20/share. Not only does purchasing TWTR for that price look very unappealing now, but it also may be impossible since Musk is still seeking outside investors. Unfortunately, it appears that a court battle may be brewing, which would extend this uncertainty that’s hanging over TWTR.
