Elon Musk says the Twitter deal is temporarily on hold

Elon Musk said Friday his $44-billion deal for Twitter Inc was temporarily on hold, citing pending details on spam and fake accounts.

"Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5 percent of users," Musk said in a tweet.

Twitter shares initially fell more than 20 percent in premarket trading, but after Tesla CEO Musk sent a second tweet saying he remained committed to the deal they regained some ground. The stock was off 11 percent early Friday.

Musk decided to waive due diligence when he agreed to buy Twitter on April 25, in an effort to get the San Francisco-based company to accept his "best and final offer" of $54.20 per share.

Since then, technology stocks have plunged amid investor concerns over inflation and a potential economic slowdown.

The spread between the offer price and the value of Twitter shares had widened in recent days, implying less than a 50 percent chance of completion, as investors speculated that the downturn would prompt Musk to walk or seek a lower price.

Spam or fake accounts are designed to manipulate or artificially boost activity on services like Twitter. Some are tied to improve commercial results, while others are designed to create an impression that something or someone is more popular.

Twitter did not immediately respond to a request for comment. There was no immediate reaction from the investors that Musk tapped last week to raise $7.1 billion in funding.

The estimated number of spam accounts on the microblogging site has held steady below 5 percent since 2013, according to regulatory filings from Twitter, prompting some analysts to question why Musk was raising it now.

"This 5 percent metric has been out for some time. He clearly would have already seen it... So it may well be more part of the strategy to lower the price," said Susannah Streeter, an analyst at Hargreaves Lansdown.
Representatives for Musk did not immediately respond to requests for comment from Reuters.

Tesla's stock, meanwhile, was up 6 percent in mid morning trading Friday. The shares have lost about a quarter of their value since Musk disclosed a stake in Twitter on April 4 amid concerns he will get distracted as Tesla's chief executive and that he may have to sell more Tesla shares to fund the deal.

Musk is contractually obligated to pay Twitter a $1 billion break-up fee if he does not complete the deal, and the language in the contract appears to cap any damages that Twitter can seek from Musk to that level.
But the contract also contains a "specific performance" clause that a judge can cite to force Musk to complete the deal.

In practice, acquirers who lose a specific performance case are almost never forced to complete an acquisition and typically negotiate a monetary settlement with their targets.

"The nature of Musk creating so much uncertainty in a tweet (and not a filing) is very troubling to us and the Street and now sends this whole deal into a circus show with many questions and no concrete answers as to the path of this deal going forward," Wedbush analyst Daniel Ives wrote in a note.

Meanwhile Musk has said that if he buys Twitter he "will defeat the spam bots or die trying" and has blamed the company's reliance on advertising for why it has let spam bots proliferate.

He has also been critical of Twitter's moderation policy and has said he wants Twitter's algorithm to prioritize tweets to be public and was against too much power on the service to corporations that advertise.

Nevertheless, Musk is targeting advertising revenue to more than double by 2028, according to slides he presented to investors that were reported by the New York Times.

Ads are expected to make up about 45 percent of Twitter's total revenue by that time, down from nearly all of its revenue today, according to the investor presentation.