On May 13th local time, American billionaire Elon Musk posted on his social media that he has temporarily shelved the $44 billion acquisition of Twitter . This move is to wait for detailed calculations that support "junk or fake accounts only account for less than 5% of users".
↑After Musk announced the shelves the acquisition on the 13th, Twitter's stock price fell 9.7% at the close, closing at US$40.72
According to foreign media reports on the 12th, affected by this move, Twitter's stock price once plummeted by more than 20% in pre-market trading. About two hours after the news was released, Musk posted another short message on social media saying that he was "still committed to" the acquisition, but did not provide further instructions. Subsequently, Twitter's stock price rebounded, but it still fell 9.7% at the close.
Foreign media pointed out that Musk's "shelf" acquisition transaction may be to renegotiate the acquisition price with Twitter, or it may be that he has abandoned the acquisition transaction. According to an agreement reached between Musk and Twitter last month, the termination of the deal means Musk will pay a $1 billion "breakup fee". In addition, if Musk abandons the acquisition, he may face the risk of a default lawsuit, and the subsequent additional losses will be billions of dollars.
acquisition agreement reached less than a month
On April 25, local time, the social media platform Twitter accepted the acquisition agreement of "the richest man in the world" and CEO of Tesla . Under the agreement, Musk will acquire Twitter for $54.2 per share, totaling about $44 billion. According to foreign media reports, if the acquisition transaction is completed smoothly, it will become one of the largest acquisitions in the history of the technology industry.
has only been more than two weeks since the agreement was reached. Musk announced on Twitter on the 13th that the acquisition transaction was "shelfed" because he was still waiting for specific details on Twitter's proportion of false or spam accounts to ensure that its proportion is indeed below 5%. Twitter has had spam or fake accounts issues for years. After reaching the acquisition agreement, Musk said that one of his top priorities is to clear the platform's fake accounts, "spam bots", etc.
↑ Musk once said that one of his top tasks is to clear Twitter’s fake accounts, “spam bots” and other
On May 2, Twitter estimated in its latest quarterly filing that among the 229 million profitable daily active users of the platform in the first quarter, false or spam accounts accounted for less than 5%. The company said the estimates were "based on a review of sample accounts", but admitted that the measurements were not independently verified and that the actual figures could be higher than 5%. Twitter's statement is similar to the verbal use in quarterly filings submitted in previous years.
Musk said later that "to find out", his team will conduct a "random sampling survey" of 100 followers. Despite stressing that he is "still committed to" the acquisition, Musk's move to shelve the transaction caused an uproar in the market. The outside world speculates whether Musk's move is retreating at the last minute? Or just to seek attention? Or is it trying to lower the acquisition price?
On the same day, Twitter's stock price "directly" responded to Musk's seemingly contradictory news, initially falling by more than 20% in pre-market trading. Twitter's stock price rebounded after Musk stressed that he was still working on the acquisition, but it still fell 9.7% at the close to $40.72, down $4.36 from the previous trading day. This closing price was significantly discounted to Musk's acquisition price of $54.2 per share.
is a negotiation strategy to reduce the acquisition price?
Foreign media reported that since Musk reached a acquisition agreement with Twitter, U.S. technology stocks have plummeted as investors worry about inflation and potential economic slowdown. Since the closing on April 25, the Nasdaq index has fallen by more than 11%. As of May 13, Twitter's stock price has also fallen for 6 trading days. According to reports, the gap between Twitter's stock price and acquisition price has widened in recent days, which means Musk's chances of successfully acquiring Twitter are less than 50%.
While Twitter fell sharply, Tesla's stock price closed up 5.7% on the 13th, approaching $770 per share. However, Tesla's stock price has continued to be weak recently, and has fallen by about 24% in the past month.Red Star News previously reported that Musk had said he would obtain up to $12.5 billion in margin loan financing by collateralizing some of the shares he held in Tesla. ( previously reported: Musk acquired Twitter for US$44 billion: With only 3 billion cash flow , how did he get the $21 billion out of his own pocket? )
↑ Tesla's stock price has fallen by about 24% in the past month
Given the huge amount of book losses of Musk in Tesla's equity, analysts on Wall Street have recently become increasingly doubtful whether the acquisition can be completed with a quotation of US$44 billion. Earlier this week, financial research firm Hindenburg pointed out in a research note: "The deal has a significant risk of being repriced." If Twitter shares continue to fall, the amount of profits made by Twitter from the acquisition will also increase.
Hindenburg Research Company added analysis: "Basing the future of Twitter (and even Tesla) on further equity-secured margin loans, or selling more Tesla stocks in a turbulent market will bring risks to both companies." In this regard, Musk has repeatedly denied external concerns on social media. He also said at last month's TED event that he didn't care about the economic benefits of acquiring Twitter.
After Musk announced the shelving of the acquisition transaction on the 13th, Susanna Stritt, senior investment analyst at British stockbroker Hargreaves-Lancedon, pointed out: "Many people question whether fake accounts are the real reason behind this delay tactic, because the main purpose of Musk's acquisition seems to be to promote freedom of speech rather than focus on creating wealth." According to Tony Sarkonaji, senior research analyst at Bernstein, due to the sharp decline in the market, this may be Musk's "uses the real active users of the Twitter platform as a negotiation strategy" to seek to complete the acquisition transaction at a quote below $44 billion.
If you give up the acquisition of Musk, you will face the risk of being sued
According to foreign media reports, Twitter is obviously unprepared for Musk's unilateral suspension of the acquisition. The company also said a day ago that it would stop recruiting new employees and try to cut costs. It is reported that two Twitter executives have been fired by the company. In response, Twitter CEO Parag Agra Var said later that he expected Musk to complete the acquisition of Twitter, but "we need to be prepared for all situations."
↑ Twitter also previously stated that it would stop hiring new employees and try to cut costs to reach a acquisition deal
Some analysts speculated that multiple reasons such as the continued decline in Twitter's stock price, the book loss of Tesla's equity and the overall sluggish tech stocks may prompt Musk to turn against the acquisition. Dan Ives, a well-known technology analyst at Wadebush Securities, pointed out: "Wall Street believes that the deal may break down, and Musk will negotiate at a lower price, or withdraw a $1 billion breakup fee."
According to the acquisition agreement reached last month, if Musk cancels the acquisition, he will need to pay Twitter a $1 billion "reverse termination fee." However, this breakup fee does not exempt Musk from the risk of being sued by Twitter. The contract contains a "specific performance" clause that can be forced by a judge to complete the deal, and once Twitter initiates a breach of contract lawsuit against Musk and wins, Musk faces much more additional losses than a $1 billion breakup fee.
It is reported that due to the impact of the new crown epidemic on the global economy, some companies have repriced the acquisition transactions they have reached. In the second half of 2020, French luxury goods giant LVMH (LVMH) "threatened" to withdraw from the acquisition deal with the American jewelry retailer Tiffany . Tiffany then sued LVMH, which attempted to unilaterally breach the contract. In the end, the two sides agreed to reduce the acquisition price by $425 million, reach a settlement and close the transaction at $15.8 billion.
In addition to questioning Twitter’s false or spam accounts, people familiar with the matter said Musk is recently negotiating with outside investors on equity and priority financing to eliminate any margin loan demand related to Tesla’s stock. According to recent documents, Musk received a $7.1 billion financing commitment from investors such as Oracle co-founder Larry Ellison , Sequoia Capital and Qatar Holdings.
However, Neil Camplin, a technology analyst at Mirabo of the international financial services group, analyzed: "From the point where Musk is constantly trying to get financial support, he may never get all the funds, but he has all the initiative." He added that the Twitter board has been "hijacked" and needs to be held responsible for this chaos. "No other buyers will appear. If Musk is still interested in acquiring, he may propose a lower price than this."
Red Star News reporter Hu Yiling
Editor Guo Yu
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