Musk’s Twitter deal ‘temporarily on hold’

Musk, Tesla's billionaire owner, agreed a £34.5bn deal in principle to take over the social media giant last month, pledging to improve what he considers to be limitations around free speech on the site and also to remove fake accounts.

In a pre-dawn tweet today (Friday 13 May, a date perhaps not entirely coincidental), Musk said the deal is now on hold “pending details supporting calculation that spam/fake accounts do indeed represent less than 5 per cent of users”.

His tweet linked to a report published earlier this month which said Twitter estimates spam and fake accounts comprise less than 5 per cent of its daily users.

It is unclear why Musk now considers this detail a potential dealbreaker. It is known that the terms of the deal include a $1bn termination fee that Musk would be obliged to pay should he back out of the deal, although it is unclear how such a clause would apply if Musk were able to show that Twitter’s user figures were misleading or incorrect. Musk has not yet tweeted any further on this issue.

However, it has been noted that despite being routinely lauded as the world's richest person, the vast majority of Musk's wealth is estimated according to the value of his Tesla shares. This week, the price of those shares nosedived, as supply chain issues in Covid-shuttered China mount up, negatively affecting Tesla's ability to produce and sell more cars. An 8 per cent drop in the Tesla share price, plus an additional 15 per cent plunge in its market capitalisation, wiped around $31bn off Musk's paper fortune. Tesla's stock price has fallen by nearly 30 per cent in the last month.

Furthermore, although Musk announced last week that he had raised $7.1bn from a group of A-list investors to help fund his Twitter acquisition, the remaining $27.3bn of the equity commitment he made to Twitter’s board remains unaccounted for.

It is known that Musk has pledged a considerable amount of his own fortune towards the deal. Towards that end, Musk has been selling some of his Tesla shares and also putting others up as collateral for personal loans to raise cash.

Some financial analysts have suggested that the deal could turn into a protracted back and forth between Musk and Twitter, with real potential for the price of the deal to come down, as the value of big ticket tech companies such as Twitter continue to slide. Shares in Twitter in fact fell by around 20 per cent in premarket trading today, following Musk's tweet. Musk may come to feel that he's overpaying for a company worth less than it was when he made his original bid.

This would be somewhat ironic, given that Musk is being sued by one Twitter shareholder, Marc Bain Rasella, who alleges that Musk manipulated Twitter’s share price by delaying his announcement that he had acquired over 5 per cent ownership in the company to 14 March, breaking Securities and Exchange Commission (SEC) rules. Musk is now under investigation by the SEC regarding his purchase of Twitter shares.

Musk's approach regarding his hostile purchase of Twitter has caused an almost existential crisis inside the company. Many employees have publicly voiced their concerns around the takeover. Musk's latest pivot on Friday followed an announcement on Thursday from Twitter chief executive Parag Agrawal that two of the firm's top leaders would be leaving the company. In an email sent to employees, Agrawal said Twitter’s leaders for consumer product and revenue would exit the company. He added that Twitter was temporarily pausing hiring and would review all existing job offers to determine whether any “should be pulled back”.

Musk's stated plans for Twitter, should he become its new private owner, include (according to an investor pitch deck leaked to the New York Times) quadrupling users and quintupling revenue by 2028, while simultaneously cutting in half Twitter’s reliance on its main revenue source, advertising. Given Twitter's ongoing struggle to hit its own revenue goals – Agrawal admitting as much in his staff email yesterday – Musk's goals appear extremely ambitious.

Musk has also suggested to investors that he might take Twitter public again in as few as three years, as a potential lure for anyone looking for a relatively quick return on their investment. This would involve Musk – already the CEO of two major companies, Tesla and SpaceX – in a time-consuming and distracting IPO process.

Another headline, and potential headache, for Twitter under Musk's leadership is his stated desire to unleash "free speech" on the platform.

Critics have said that allowing users to post almost anything under the guise of free speech seems destined to result in a torrent of all the worst aspects of social media, including dangerous fringe beliefs, the more deranged conspiracy theories, factual distortions and flat-out untruths.

Earlier this week, Musk reiterated his belief that former US President Donald Trump should have his permanent Twitter ban reversed.

Update: Since we first published this story, Musk tweeted again today (Friday May 13), saying: “Still committed to acquisition”.