It’s over a month since Elon Musk, the world’s richest man, made a formal $44 billion offer for the social media platform Twitter, offering $54.20-a-share. It’s over three weeks since Twitter’s board, after failing in a frantic dash to attract rival suitors, accepted the offer, subject to shareholder approval.
The deal hasn’t, however, been completed yet even though it is binding. Technically, Musk has until October to complete the acquisition but suspicions he has had a change of heart and will pull out are mounting.
Last Friday Musk, of course, tweeted that the deal was “on hold” until he receives assurances that Twitter’s estimate that around 5% of its daily users are ‘bots’ is accurate. He has openly stated he doesn’t believe the figure is close to the real number of illegitimate accounts, though followed up Friday’s initial tweet with the message he was “still committed” to the acquisition.
Yesterday he again intimated his problem with Twitter’s internal calculation estimating just 5% of daily active users are fake accounts controlled by bots, tweeting “this deal cannot move forward” until he gets more details on how the company reached its figure.
In theory, Musk is locked into the deal. While there is a $1 billion break clause, it is only valid if the deal falls apart as a result of external factors such as regulators blocking it. If he just walks away claiming he has been misled, he is on shaky legal ground. Twitter has always said the number of fake accounts it says it has is an estimate and Musk made his accepted bid in possession of that information.
Yesterday Twitter itself said it is convinced Musk can only back out of the deal if it reneges on standard takeover promises, such as not making any significant acquisitions before the deal closes. If he backs out at this point, citing presumed inaccuracy of Twitter’s bot account numbers, the company will almost certainly sue. And M&A legal experts believe Musk would probably lose.
The Telegraph newspaper quotes John Coffee of the Centre on Corporate Governance at New York’s Columbia Law School as commenting:
“It’s a very, very weak legal case. He’s in the weakest possible position. He did no due diligence. He wanted to rush it [the deal], he wanted it expedited.”
“Delaware [where Twitter is registered] will almost never let you escape a merger agreement, unless it’s something that would shock the entire world.”
However, despite that, Musk’s bid for Twitter is for $54.20-a-share. The Twitter share price was sitting at $37.83, over 30% lower, in early trading on Wall Street today. That suggests markets are far from convinced the deal will go through at the price Musk bid, despite his weak legal case for backing out. If investors believed there was still a high chance of Musk buying the company at the price agreed a few weeks ago, or even close to it, that’s a very easy 30% ROI sitting waiting to be picked up.
Last week the short seller Hindenburg Research said that the recent slump in tech valuations means Twitter shares would be worth around $31 if Musk had not launched his takeover bid. The fact the shares are still trading well above that suggests a level of faith a deal will be done. But not that it will be at a price especially close to the $44 billion already agreed.
How much Musk manages to knock off the price he signed up for remains to be seen and the saga is likely to have a few twists left in it yet.