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Elon Musk says he's put the blockbuster Twitter deal on pause over fake accounts

The Tesla and SpaceX mogul said he needs to make sure the fake accounts "do indeed represent less than 5%" of Twitter's users, as the company has estimated.

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Elon Musk says he wants to see more details about the number of fake accounts on Twitter before his deal to buy the social media platform goes through. He's seen here last week, arriving for the 2022 Met Gala at the Metropolitan Museum of Art in New York.
Elon Musk says he wants to see more details about the number of fake accounts on Twitter before his deal to buy the social media platform goes through. He's seen here last week, arriving for the 2022 Met Gala at the Metropolitan Museum of Art in New York. Angela Weiss | AFP via Getty Images
Updated May 13, 2022 at 12:35 PM ET

Elon Musk said he's putting his $44 billion takeover of Twitter "temporarily on hold," saying that he wants more details about how many of the social platform's accounts are fake or spam.

The shock announcement sent the company's shares tumbling as investors questioned whether Musk might back out altogether.

The Tesla and SpaceX mogul said he needs to make sure fake accounts "do indeed represent less than 5%" of Twitter's users, as the company has estimated.

Musk

Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of usershttps://t.co/Y2t0QMuuyn

— Elon Musk (@elonmusk) May 13, 2022">tweeted about putting the massive deal on hold early Friday, sharing a recent Reuters news story. He later added a reply stating, "Still committed to acquisition."

The Reuters article cited a securities filing Twitter made shortly after the company reached a deal to sell to Musk, stating that of the 229 million Twitter users who saw advertising in the first quarter of 2022, less than 5% were fake accounts.

Twitter declined to comment. On Friday afternoon, CEO Parag Agrawal tweeted that he expects the deal to close but added, "we need to be prepared for all scenarios and always do what's right for Twitter."

Tesla stock drop casts a shadow over Musk's Twitter deal

The billionaire's latest tweetstorm added to the turmoil surrounding his acquisition of the influential but struggling social media platform.

Twitter shares sank more than 9% on Friday to their lowest level since Musk first disclosed he'd become Twitter's largest individual shareholder in early April.

The drop comes as tech stocks have been battered on Wall Street amid a broader sell-off. Shares in Tesla, which account for the bulk of Musk's wealth, had lost nearly 30% of their value in the last month as of Thursday's close. On Friday, Tesla stock rose.

Musk is relying on his Tesla stake to help fund his $21 billion portion of the Twitter deal by selling some shares and borrowing against others. (He's also brought in other investors including Oracle founder Larry Ellison, the venture capital firm Andreessen Horowitz and Qatar's sovereign wealth fund to help finance the purchase.)

The combination of the wider market drop and Tesla's decline "would naturally give an individual like Elon Musk cold feet," said Angelo Zino, analyst at CFRA Research.

But it's not clear that Musk would or could simply walk away from the deal. His agreement with Twitter includes a $1 billion break-up fee if he backs out, with few exceptions.

"Generally speaking, people don't sign merger agreements so they can walk away from them. They sign merger agreements so they can do deals," said Donna Hitscherich, a professor at Columbia Business School.

Zino said Musk could be using the question over fake accounts as an excuse to cut his offer price of $54.20 a share.

"He is giving himself more options and giving himself more leverage," he said. "It appears like he's paying more than he needs to pay for this deal."

Musk will examine Twitter's estimates of fake accounts

The 5% figure Musk flagged comes from Twitter's first-quarter earnings report, which it released days after reaching the deal to sell the company.

Musk has said he plans to get rid of spam and automated bots on Twitter as part of his vision for improving the company.

The question of fake Twitter accounts has to do with how the company tracks the number of "monetizable daily active usage or users" — essentially, the accounts it shows ads to when people or organizations access Twitter on any given day.

The company works to detect and suspend false or spam accounts, and to omit them from its calculations of monetizable active users. But Twitter also acknowledged in its filing that fake or spam accounts still exist on its platform. It added, "our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated."

In its earnings report, Twitter said it brought in $1.2 billion in revenue, including $1.11 billion in ad revenue — a sharp rise from the same period in 2021. But its costs and expenses rose at an even sharper rate, to $1.33 billion — resulting in an operating loss of $128 million.

The impact of the delay is uncertain

Twitter announced the deal to sell to Musk on April 25, saying he would take the company private by paying $54.20 per share in cash after a whirlwind courtship between the billionaire and the social media platform.

The company said it expects to complete the transaction sometime in 2022.

In his Friday update, Musk didn't provide any other details about putting the deal on hold, leaving it open to interpretation as to how he might postpone or delay the massive purchase.

The seriousness of the matter is also an open question, as Musk often uses Twitter to air spontaneous thoughts alongside his concrete plans.

Before he tweeted about the Twitter buy, for instance, Musk's previous message demanded, "Stop the war on straws!"

That habit has gotten him into trouble before. In 2018 the Securities and Exchange Commission fined Musk over a tweet in which he claimed to have secured funding to take Tesla private — which, it turned out, was not the case, according to a ruling from a judge.

Earlier this week, Musk said that once he completes the deal, he would reverse Twitter's permanent ban on former President Donald Trump. He called the ban "a morally bad decision, to be clear, and foolish in the extreme."

Fresh questions over whether Musk will end up owning Twitter will add to upheaval inside the company. On Thursday, Agrawal announced a hiring freeze and spending cuts. He also said two top executives were leaving, adding to concerns among some employees of a wider exodus ahead of Musk's takeover.

On Friday, the CEO tweeted that the moves were aimed at building "a stronger Twitter." He added, "I won't use the deal as an excuse to avoid making important decisions for the health of the company, nor will any leader at Twitter. "

"There is a significant amount of uncertainty and chaos being thrown at Twitter at this moment in time," said Zino, the CFRA analyst.

"You have to wonder if you're an investor today," he continued, "what kind of Twitter are you going to have if Elon Musk does ultimately walk away from this?"

Copyright 2022 NPR. To see more, visit https://www.npr.org.

Transcript :

AILSA CHANG, HOST:

Elon Musk says his deal to buy Twitter for $44 billion is on pause. That announcement sent Twitter stock plunging, creating fresh turmoil for the company.

NPR tech correspondent Shannon Bond joins us now to unpack what is going on. Hey, Shannon.

SHANNON BOND, BYLINE: Hey, Ailsa.

CHANG: OK. So why does Elon Musk say he's putting this whole deal on hold now?

BOND: Well, in a tweet, of course, Musk said he has questions about just how many Twitter accounts are fake or tweeting spam. Now, Twitter regularly discloses how many fake accounts it has. And, you know, this is a number that matters because Twitter's business is selling ads, and advertisers don't want to pay for ads that aren't being seen by real people. In its latest filing, Twitter says less than 5% of accounts are fake. But Musk has said that getting rid of spam and automated bot accounts is a priority for how he wants to change Twitter. And so now he's saying he wants to look into these numbers himself. And so that's why he's putting this deal on hold.

CHANG: OK. So does this actually mean Musk might not buy Twitter after all?

BOND: Well, in a follow-up tweet, he said he is still committed to the deal. But look, Ailsa; Twitter's shares tanked today on this news. They're down more than 9%. And that suggests investors are worried that Musk is maybe having second thoughts about this deal.

CHANG: So why would he change his mind?

BOND: Well, look; this purchase is getting more expensive and risky. You know, Musk has committed to paying $21 billion out of this purchase price. He said he's going to do that by selling and borrowing against some of his shares in Tesla, the electric car company where he's CEO and the source of much of his wealth. But Tesla's stock price has dropped by almost a third since the Twitter deal was announced.

And on top of that, there has been this wider sell-off in the market that's hit tech stocks especially hard. Here's what Angelo Zino, an analyst at CFRA Research, told me.

ANGELO ZINO: With Tesla's stock kind of petering here in recent weeks, I think that's also had a impact on Musk's, you know, personal wealth. And, you know, the combination of the two, I think, would naturally kind of give an individual like Elon Musk cold feet.

CHANG: Cold feet - but can Musk just walk away from this deal easy peasy?

BOND: Well, he would have to pay a $1 billion breakup fee to Twitter with, you know, very few exceptions.

CHANG: OK.

BOND: And experts tell me that even if he did that, he could still be sued for breach of contract, be on the hook for even more money. So some people think it's much more likely Musk may be using this issue as leverage to renegotiate his offer price, basically to pay less.

And this is not the way that big corporate deals typically play out. Here's what Donna Hitscherich, a professor at Columbia Business School, told me.

DONNA HITSCHERICH: Generally speaking, people don't sign merger agreements so they can walk away from them. They sign merger agreements so they can do deals. So I guess the question is, is this a bargaining issue, or is this really a do-or-die, I have to renegotiate the deal or I'm going to try to terminate the merger agreement?

BOND: Of course, though, this is Elon Musk we're talking about. You know, he often operates on gut instinct, so it's hard to say what he's going to do next.

CHANG: So fascinating. OK, so what impact is all of this having on Twitter, the company, at this point?

BOND: Well, it's adding to what's already a huge amount of uncertainty. You know, just yesterday, Twitter CEO Parag Agrawal announced a hiring freeze and spending cuts. He also said two top executives are leaving. That's adding to concerns that Musk's potential takeover is going to result in an exodus of employees. Meanwhile, this afternoon Agrawal tweeted he does expect the deal to close, but he says, quote, "we need to be prepared for all scenarios."

CHANG: That is NPR's Shannon Bond. Thank you, Shannon.

BOND: Thanks, Ailsa. Transcript provided by NPR, Copyright NPR.

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