• In a fresh turn of events in the Twitter takeover bid, Elon Musk made unusual “temporarily on hold” and subsequent “still committed” announcements over the social media platform.
• Musk is waiting for the results of random samples to confirm the recent filing of fake accounts on Twitter.
• Putting an end to the existence of fake accounts on Twitter, the takeover was a bid to reform it and create a platform that supports freedom of speech.
Weeks after announcing the takeover of Twitter for a $44 billion deal, Elon Musk tweeted on Friday he has put the bid “on hold pending details supporting calculations that fake/spam accounts do indeed represent less than 5% of users”. Following this, Twitter shares went down by more than 20%. Musk further posted “still committed to acquisition” within two hours after this.
The events in the background
The ‘deal on hold’ tweet was linked to May 2 Twitter’s disclosure about its spam and fake account problems in a report by Reuters. According to this report, Twitter estimated that during the first quarter of the year, the total number of spam or fake accounts made up fewer than 5% of the platform’s 229 million daily average active users. The sample accounts though, according to Twitter, were not verified independently and the actual number could be higher. This is particularly due to the fact that the filing does not contain new information about the spam accounts, given that the previous quarterly findings date back to 2014.
While making an announcement about the takeover of the platform, Musk had earlier expressed his belief against the automated Twitter accounts or “bots”, those that are not run by humans. With this, he had also intended “to improve the platform by authenticating the humans”.
Automated accounts ranged from disaster early warning systems to algorithmic art on the Twitter platform. An “automated account label” was introduced in 2021 to publicly mark these accounts to be run by a computer instead of a human. Twitter ensured that these accounts followed strict rules and could lose access in case of any misconduct.
However, given their nature, they could use the different routes to transform themselves into spam or fake accounts, sometimes even scamming the users or even influencing public discourse with political propaganda tweets.
“Bots massively multiply the ability of one person to attempt to manipulate people. Picture your annoying friend on Facebook, who’s always picking political fights. If they had an army of 5,000 bots, that would be a lot worse, right?”, Samuel Woolley at Oxford University at the launch of a report into social media manipulation in 2017.
The implications of flouting the law
Twitter, it seems, has had spam problems for many years. The company has even acknowledged that reducing the number of malicious and fake accounts could be the key factor to keeping it growing. This, evidently, concerns the analysts as to why Musk would back away from the deal.
“The implications of this tweet will send this Twitter circus show into a Friday the 13th horror show as now the Street will view this deal as 1) likely falling apart, 2) Musk negotiating for a lower deal price, or 3) Musk simply walking away from the deal with a $1bn breakup fee.”, Dan Ives, Tech Analyst Wedbush Securities.
According to the deal, Musk owes a $1 billion breakup fee to Twitter for walking away from it, with a “specific performance clause” to bind Musk to the deal at the agreed price of $54.20 per share.
“I suspect he wants to use the threat (legally weak) that the disclosure about bots on the platform results in a failure of a Twitter representation (it doesn’t) and then push for a renegotiation. That’s hardly an original thought and this is not an uncommon strategy. If the Twitter board has a spine, it will just say no and sit on its rights under the agreement.”, said Brian Quinn, an associate professor at Boston College Law School.
Going by normal merger and acquisition standards, Musk’s announcement to put a pause to the deal, as a tweet is unusual.
“Saying it’s temporarily on hold is not standard operating procedure when you’ve made a tender offer for a company. It’s confusing and also nonsensical. It just doesn’t hold up,” said Art Hogan, the chief market strategist at National Securities.
Legal action: Likely or not
As part of the deal, Musk had agreed to consult with Twitter to make any public statements about the deal that could disparage the company. Though this unusual move is insignificant to invite an SEC action, it could prompt Twitter shareholders to initiate a lawsuit if the deal falls apart (for tanking the stock prices). But it is just the time that will tell what is going to happen next.
Founder Dinis Guarda
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