Musk Sends Twitter Shares on Rollercoaster After Saying Deal ‘On Hold,’ Then ‘Still Committed’

By Andrew Moran
Andrew Moran
Andrew Moran
Andrew Moran covers business, economics, and finance. He has been a writer and reporter for more than a decade in Toronto, with bylines on Liberty Nation, Digital Journal, and Career Addict. He is also the author of "The War on Cash."
and Emel Akan
Emel Akan
Emel Akan
reporter
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.
May 13, 2022 Updated: May 15, 2022

Twitter (TWTR) shares fell nearly 10 percent on May 13 after Elon Musk posted mixed messages on Twitter about his proposed takeover of the social media platform.

Musk sent Twitter shares tumbling almost 25 percent in premarket trading that day after stating that his acquisition of Twitter was “temporarily on hold” until he could get more information about the number of false or fake accounts on the social media network.

“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5 percent of users,” Musk wrote in a tweet early on May 13.

“Still committed to acquisition,” Musk, the world’s richest man, later stated on Twitter.

Musk’s announcement came weeks after the Tesla CEO reached a deal with Twitter to take the company private for $54.20 a share, putting the firm’s value at about $44 billion. Twitter’s stock is currently trading below $41, which is roughly a 25 percent discount to the $54.20 purchase price.

Meanwhile, Tesla (TSLA) stock has risen 7 percent in response to the news. The stock also reacted to earlier media reports that Musk is in talks to secure more equity funding for his takeover deal, avoiding the need for any margin loans guaranteed by his Tesla shares.

According to market analysts, the likelihood of a takeover is decreasing following Musk’s announcement. However, because Twitter currently trades at a substantially higher valuation multiple than Facebook, they say, investors will be disappointed if the acquisition falls through as shares will collapse.

Actual user numbers could affect the valuation of the company.

Epoch Times Photo
Twitter’s (TWTR) share price movement last five days. (Source: The Epoch Times Markets)

Twitter claims that bots or fake accounts make up less than 5 percent of the platform’s users. Some people, however, question these numbers.

Former U.S. Rep. Devin Nunes, who is now CEO of Truth Social, former President Donald Trump’s social media rival to Twitter, said last month on Fox Business that bot and fake accounts on Twitter are far more common than most people know.

Rumble founder Chris Pavlovski repeated these claims, adding that Musk’s move is “extremely smart.”

Truth Social is using Rumble’s cloud infrastructure.

“He needs to do his due diligence” on user numbers, Pavlovski told FOX Business’s Maria Bartiromo on May 13.

When comparing user engagements on Twitter and Truth Social, he noted that “it’s very obvious that there’s something happening” on Twitter. There’s an “enormous gap” in terms of engagements, he said.

“You would see significantly more engagement on Truth than you would see on Twitter.”

Social bots are accounts, mostly on Twitter, that appear as humans but are actually produced by computer software.

According to Onur Varol, a researcher at Northeastern’s Network Science Institute, a single person can sometimes be the “master” of an army of hundreds of thousands of bots.

“We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the first quarter of 2022 represented fewer than 5% of our mDAU [monetizable daily active users] during the quarter,” Twitter announced in a filing (pdf) in April.

After learning that it had overestimated its user base, Twitter also “restated those figures to slightly lower levels going back to the fourth quarter of 2020,” Morningstar’s Ali Mogharabi stated in a recent research report.

But not everyone is convinced that the deal has been put temporarily on hold.

“Deals like this don’t work that way,” Aron Solomon, chief legal analyst at Esquire Digital, told The Epoch Times. “I’m not sure how the buyer of a $43 billion asset tells the seller, ‘I’m going to grab an espresso and think about this a bit. Please hold.'”

Solomon stated the issue isn’t a typical hiccup, saying that Musk’s tweet followed news that several Twitter executives and managers were fired.

Since Musk purchased a 9.2 percent stake in Twitter, and then later announced his intention to acquire the social media platform, it has been a volatile situation.

Epoch Times Photo
Elon Musk attends an event in New York, on May 2, 2022. (Photo by Evan Agostini/Invision/AP)

FTC, SEC Open Probes

In addition to internal upheaval at the San Francisco-based company, the tech billionaire has faced an onslaught of regulatory hurdles. The latest wrinkle in the story is the Securities and Exchange Commission (SEC) opening a probe of Musk’s trading involvement in Twitter.

While Musk initially purchased 5 percent of Twitter’s shares on March 24, he didn’t disclose that information within 10 days. If he had immediately revealed his 5 percent stake, investors would have rushed into the tech company and bought shares, market experts say.

Musk would have saved approximately $140 million by not disclosing his sizable purchase, the experts said.

It isn’t clear if SEC will pursue this development any further. In 2018, the SEC sued Musk over allegations of making false statements on Twitter about gathering enough funding to take Tesla private. He settled the case by paying a $20 million fine, but Musk denied that he lied and said he felt pressured to settle the investigation.

Musk also is facing a Federal Trade Commission (FTC) investigation. The FTC is determining if Musk violated a law that mandates individuals and businesses report immense transactions to antitrust enforcement groups, according to The Wall Street Journal. Once the filing is submitted, investors wait a minimum of 30 days before scooping up more shares to allow for a review of antitrust concerns.

Activist investors are required to adhere to the antitrust filing rules if they acquire shares that surpass a certain threshold and their assets are north of $20 million. Passive investors are exempt from the rule if they hold less than 10 percent of shares and don’t intend to direct day-to-day business decisions.

Both Twitter and Tesla shares had been on the decline last week before Musk’s announcement on May 13, falling 17 percent and 8.5 percent, respectively.

Brief Timeline of Musk’s Twitter Takeover

On April 25, Twitter accepted Musk’s proposal of $54.20 per share in cash, which put the social media firm’s value at about $44 billion.

To finance the deal, Musk secured $25.5 billion in loans, backed in part by a portion of his stake in Tesla; he also promised to provide nearly $21 billion in cash.

A securities filing on May 5 showed that Musk secured new financing from a group of investors, including a Saudi prince and Oracle co-founder Larry Ellison.

With the new money, the margin loan amount backed by Tesla shares has declined to $6.25 billion from $12.5 billion; the equity commitment has increased to $27.25 billion from $21 billion, according to the filing.

Should Musk abandon the deal, he would be required to pay a $1 billion termination fee, according to the merger agreement. Twitter also would be forced to pay a $1 billion fee if it chooses to exit the deal for a better offer.

Late last month, Twitter released its first-quarter results (pdf), and the numbers were mixed. Earnings per share were 4 cents, topping the market estimate of 3 cents. Revenue was $1.2 billion, below the expectation of $1.23 billion. Monetizable Daily Active Users (mDAUs) totaled 229 million, topping projections of 226.9 million.

Epoch Times Photo
President Joe Biden replies to questions from the media after delivering remarks on inflation and lower costs for working families in the South Court Auditorium at the White House, on May 10, 2022. (Yuri Gripas/Abaca Press/TNS)

Musk on Donald Trump, Joe Biden

Last week, Musk revealed that he would reverse Twitter’s permanent ban on former President Donald Trump.

“I think that was a mistake because it alienated a large part of the country and did not ultimately result in Donald Trump not having a voice,” Musk said virtually at a Financial Times event on May 10. “So I think this may end up being frankly worse than having a single forum where everyone can debate. I guess the answer is that I would reverse the permanent ban.”

Meanwhile, Musk tweeted on May 12 that President Joe Biden was only elected because the country “wanted less drama.”

“Biden’s mistake is that he thinks he was elected to transform the country, but actually everyone just wanted less drama,” Musk tweeted, adding that a “less divisive candidate would be better in 2024.”

Andrew Moran
Andrew Moran covers business, economics, and finance. He has been a writer and reporter for more than a decade in Toronto, with bylines on Liberty Nation, Digital Journal, and Career Addict. He is also the author of "The War on Cash."
Emel Akan
reporter
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.