Already one of the most unusual corporate takeover attempts in modern business, Elon Musk’s $44 billion bid to buy Twitter got a little weirder on Friday.
First, in a pre-dawn tweet, Mr. Musk said the deal was on hold. He said he wanted more details about the volume of spam and fake accounts on the platform.
Then, about two hours later, Mr. Musk tweeted again. He was “still committed” to the acquisition, he said, without providing any more details.
The seemingly contradictory messages left many wondering whether Mr. Musk was getting cold feet, trying to drive down the acquisition price or looking for a bit of attention. Perhaps it was some combination of the three. Twitter’s stock yo-yoed in response to his posts.
As with many things involving Mr. Musk, it was hard to know his thinking. He did not immediately respond to a request for comment.
The announcements marked the latest chapter in an unfolding corporate saga that has raised questions about free speech online and the ramifications of putting the world’s richest person in charge of one of the most influential social media platforms. Mr. Musk has pledged to loosen the company’s content moderation policies. On Tuesday, he said he would lift a ban on former President Donald J. Trump.
While most acquisitions of this scale are handled in a certain choreographed manner, Mr. Musk has opted for a more improvisational approach. He conducted limited due diligence on the deal before charging ahead, and said during an interview at a conference in April that he did not care about the particulars of Twitter’s finances.
On Friday, Mr. Musk demonstrated how his whims can influence the deal making.
In his initial tweet, Mr. Musk made reference to a May 2 regulatory filing by Twitter that included an estimate that fewer than 5 percent of Twitter’s users were spam and fake accounts. He had previously said that ridding the platform of fake accounts, bots and spam would be one of his top priorities after taking over.
Twitter has few restrictions on signing up for an account, and the company has long struggled with spam and bots. But it has been difficult to put an exact figure on the scale of the problem. In the May 2 regulatory filing, Twitter cautioned that it had applied “significant judgment” in making the calculation about the number of bots, and that its “estimation of false or spam accounts may not accurately represent the actual number,” language similar to that used in past filings from the company.
Twitter had disclosed figures about fake accounts before Mr. Musk made his bid, leaving some to view his comments as a tactic to drive down the price of the acquisition or a pretext for eventually backing out altogether. Twitter’s stock was trading at about $41 per share on Friday, compared to the $54.20 per share price that Mr. Musk agreed to pay last month.
Twitter did not respond to a request for comment.
Backing out of the deal could get messy. Mr. Musk’s deal with Twitter includes a $1 billion break up fee if he were to step away. But the cost to Mr. Musk could be much higher should he break the deal. The contract has a “specific performance clause” that could force Mr. Musk to pay for Twitter if the debt financing he has corralled for the deal remains intact.
“Specific performance is an order from the court saying, Elon Musk, I know you don’t want to, but you’ve committed to pay for this thing; you’ve got to pay for it,” said Brian Quinn, an associate professor at Boston College Law School who focuses on corporate mergers.
Mr. Musk could also try to kill — or renegotiate — the deal by arguing there has been a “material adverse event.” LVMH Moët Hennessy Louis Vuitton tried this approach with its $16 billion acquisition of the jeweler Tiffany’s, citing the effects of the coronavirus pandemic. Tiffany’s then sued LVMH, which ultimately bought the jeweler for a lower price.
How Elon Musk’s Twitter Deal Unfolded
A blockbuster deal. Elon Musk, the world’s wealthiest man, capped what seemed an improbable attempt by the famously mercurial billionaire to buy Twitter for roughly $44 billion. Here’s how the deal unfolded:
But the bar for such claims is high, lawyers say. And because Mr. Musk put together his bid at rapid-fire speed, and without looking deeply into Twitter’s internal records before signing a deal, he may not have a strong case. Twitter could argue that he could have made himself more aware of certain challenges facing the company and taken more time to look into its business.
Mr. Musk has pledged to use his personal fortune to finance the deal for Twitter, a plan that has been affected by a recent plunge in stock prices, including Tesla’s. Tesla’s stock has fallen nearly 30 percent in the past month. Mr. Musk is both selling Tesla shares and putting them up as collateral for personal loans to raise cash.
If a deal were to be completed, business challenges at Twitter could force Mr. Musk to draw further on his stock in the electric carmaker to plug potential financial holes. And any problem at Tesla that caused its stock to fall far enough could trigger clauses in Mr. Musk’s personal loans that would require him to add more collateral, limiting his ability to invest in Twitter.
Tesla’s stock rose on Friday after Mr. Musk’s comments.
The fluctuations in shares of Twitter and Tesla that followed Mr. Musk’s tweets could draw scrutiny. The Securities and Exchange Commission charged Mr. Musk with securities fraud in 2018 after he falsely tweeted that he had secured funding to take Tesla private, sending the automaker’s shares up 6 percent. Mr. Musk and Tesla paid a $40 million penalty for the tweet. A shareholder lawsuit against Mr. Musk over the tweet is ongoing.
“If I were his lawyer, I would be spending the morning scrambling to figure out what the implication of this all is under the federal security law,” said Marc Leaf, partner with Faegre Drinker and a former lawyer with the Securities and Exchange Commission.
Mr. Leaf said Mr. Musk should be concerned about how securities regulators may react to postings on Twitter that have direct ramifications on the deal to buy the company. He also said it was unclear if Mr. Musk’s postings on Twitter would require an updated filing with regulators about his plans to take the social media company private, since it is considered material information to investors. He said Mr. Musk’s lawyers were probably discussing whether to do that at some point today.
Alex Spiro, a regulatory lawyer for Mr. Musk, did not return requests for comment.
Mr. Musk’s tweet on Friday was not the first time he has taken jabs at Twitter’s business. He has raised questions about why celebrities and high-profile individuals don’t use the platform more. He targeted individual company executives who oversee the company’s policies for taking down harmful and illicit content.
The fallout of Mr. Musk’s bid has created uncertainty within Twitter, a company already struggling to add users and generate more revenue. On Thursday, Twitter’s chief executive, Parag Agrawal, fired two top executives, halted new hiring and pledged to slash spending.
Kate Conger and Matthew Goldstein contributed reporting.