As Elon Musk’s Twitter deal seems to have temporarily hit the rocks, it could be a sign that Musk will end up getting Twitter for a discount.
Buffeted by the issue of fake accounts on the social media platform, followed by Musk announcing a temporary pause on the deal, Twitter is ailing, which could result in Musk knocking down his price.
“So it’s absolutely possible that he’s doing all of this at the moment to decrease the value of Twitter shares, and then he says ‘oh, I am of course still interested, but not at that ridiculously high price we talked about a couple of months ago,’” Aron Solomon, the chief legal analyst for Esquire Digital, told The Western Journal in an email.
However, Twitter is pushing to try to force the deal to a close.
“The board and Mr. Musk agreed to a transaction at $54.20 per share. We believe this agreement is in the best interest of all shareholders. We intend to close the transaction and enforce the merger agreement,” Twitter board said in a statement Tuesday, according to The New York Times.
This push to close the deal at the original set price may be an indication that Twitter is feeling on edge as its stock falls and its overall value has been called into question over the issue of fake accounts.
In a filing at the beginning of May, Twitter estimated that “false or spam accounts represented fewer than 5% of its monetizable daily active users during the first quarter,” Reuters reported.
The percentage of fake users on Twitter will directly affect the value of the company, so Musk (rightly) complained, announced a hold on the deal Friday and demanded clarification on just how many fake accounts are on Twitter.
“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk tweeted.
He followed up a few days later with this tweet:
20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher.
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.
— Elon Musk (@elonmusk) May 17, 2022
Sure, the deal may be on hold and Musk may be really angering Twitter, but at the end of the day, he is holding most of the cards and all of the money.
“Elon Musk realizes that no matter how many SEC or other government regulations he breaks, he’s probably too big to take on,” Solomon told The Journal.
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Musk is also, clearly, not the only one who recognizes that Twitter is falling in value.
On Wednesday, the stock was trading more than 30 percent below what Musk initially offered for the platform.
Musk’s initial offer for Twitter was for $54.20 a share, CNBC News reported.
That put the whole deal at about $43 billion since there are about 764.18 million outstanding shares, according to Barron’s.
On Wednesday, Twitter’s stock closed at $36.85, according to Trading View.
That means if Musk still offered his generous 20 percent premium on the current share value, the offer would be $44.22 per share and bring the total deal to about $33 or $34 billion — so Musk could be setting the stage for a $10 billion discount from his original offer.
While Musk is one of the richest men in the world, paying an extra $10 billion for a company that is rapidly losing share value would just be foolish. Musk, the CEO of the electric car manufacturer Tesla and the founder and CEO of the aerospace giant SpaceX, is a good businessman and obviously no fool.
It’s not just Twitter stock that’s hurting, of course. As The Wall Street Journal reported Wednesday, the market dropped 1,100 points by the 4 p.m. close, the worst decline since 2020.
But Twitter stock is the issue at hand for Musk.
“The reality is that this morning Twitter is trading at 30% below Elon Musk’s offer, so there is no way that he’s going to go through with the existing sale price even if he does go through with the deal,” Solomon told The Western Journal.
While it seems most likely that all of this will end up discounting the price of Twitter significantly, there is also the chance that Musk could back out altogether.
“If Twitter publicly stated (and filed) user metrics that were knowingly false, there’s an opportunity to show that Twitter was being fraudulent and this could help get Musk out of the deal,” Solomon noted.
Whichever way this deal does go, though, in the end, Twitter will take a bit of a beating.
Either Musk will end up acquiring the platform at a huge discount or he will wriggle out of the deal and Twitter will be stuck with a much lower value and falling share values.