Is Elon Musk’s deal with Twitter getting ugly?

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Elon Musk has recently put on hold his plan about acquiring Twitter for a whopping $44 billion aka $54.20 per share over his concerns about the number of fake users on the social media platform. The major factor for this step is that he wants to confirm the number of spam or fake users reported. Twitter shared that the number of such users is estimated at less than 5% of its 229 million users which was estimated based on checks conducted on a sample size of 100 Twitter user profiles. Musk has suggested he is still committed to the deal however wants to do further due diligence and hence has put the process on hold.

Now, why does this statistic matter? The higher number of spam users would mean more time, resources and investment in cleaning up the user base.

One of the main goals stated by Musk when he wanted to buy Twitter was to remove any type of censorship and increase public trust by making it politically neutral. To make it politically neutral Twitter needs to have a very low number of spam users which will make it difficult for any big organization/ the leftist/ or the rightist to sway any opinions over the platform. He also shared that opportunity for Truth Social exists since Twitter censored free speech. For those not aware, Truth Social is another social media platform founded by Mr. Donald Trump with a motto to “encourage an open, free, and honest global conversation without discriminating against political ideology to promote free speech”. We believe it was also founded as Mr. Trump is banned from Twitter and he wanted a platform to ramble discriminatory stuff like he always wanted.

Musk can achieve his vision of Twitter once the number of spam or bots is reduced drastically. High spam users will also impact Twitter’s ability to generate revenues in the long term.

One of the other aspects which can impact the deal now is financing. Much has changed in the market conditions from the last week of April to now where we have witnessed a freefall in stock markets and Tesla share currently trading at $769.59.

To support the financing of the deal Musk sold about 9.6 million shares of Tesla, worth around $8.4 billion. He also used Tesla’s shares to secure loans which will now be impacted because of a fall in the value of shares. With more of Tesla’s equity in the mix and a higher number of spam users, the lucrativeness of acquiring Twitter might start diminishing.

Musk also shared that he received a notice from Twitter’s legal team stating a breach of contract for revealing the sample size of 100 users used by Twitter for the estimation of spam users. However, this is not much of a surprise as this calculation has been disclosed by Twitter in each of its quarterly filings from 2014.

Twitter shares are now trading at a discount of ~30% which has also contributed to one of the reasons why this deal can fall apart. It would be interesting to see whether Musk tries to negotiate a new price considering the recent findings or goes ahead with the deal.