Elon Musk says Twitter deal 'temporarily on hold'

Elon Musk said Friday that his planned $44 billion US purchase of Twitter is "temporarily on hold" pending details on spam and fake accounts on the social media platform, another twist amid signs of internal turmoil over the proposed acquisition.

Musk tweeted early Friday that he wanted to pinpoint the numberof spam and fake accounts on the social media platform. He has beenvocal about his desire to clean up Twitter's problem with "spambots" that mimic real people, and he appeared to question whetherTwitter was underreporting them.

But the company has disclosed in regulatory filings that its botestimates might be low for at least two years, leading some analyststo believe that Musk could be raising the issue as a reason to backout of the purchase.

In a tweet, the Tesla billionaire linked to a Reuters story from May 2, citing a financial filing from Twitter that estimated false or spam accounts made up fewer than five per centof the company's "monetizable daily active users" in the first quarter.

"Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users," Musk wrote in his tweet, indicating he's skeptical that the number of inauthentic accounts is that low.

On Friday, Musk subsequently tweeted that he's "still committedto acquisition."

Latein the day, he followed up with anothertweetsaying his team "will do a random sample of 100 followers" on Twitterto find outhow many of the platform's users are spam/fake accounts, and invited others to repeat the process and "see what they discover."

Neither Twitter nor Musk responded Friday torequests for comment from AP.

Musk has conducted a long flirtation withTwitter that culminated in an April deal to acquire the socialplatform.

The problem of fake accounts on Twitter is not a secret.In its quarterly filing with the U.S. Securities and Exchange Commission, Twitter itself doubted thatits count of bot accounts was correct, conceding that the estimatemay be low.

"In making this determination, we applied significantjudgment, so our estimation of false or spam accounts may notaccurately represent the actual number of such accounts, and theactual number of false or spam accounts could be higher than we haveestimated," the filing says.

A review of Twitter filings with the SECshows that the estimate of spam bot accounts and similarlanguage expressing doubts about it have been in Twitter's quarterlyand annual reports for at least two years, well before Musk made hisoffer.

Sara Silver, a professor of business journalism and financialcommunication at Quinnipiac University, said it appears Musk isusing the number of spam accounts as a pretext to pull out of thedeal.

"To claim that this is the reason that he's putting the deal onpause, it's not credible," Silver said. "This is not a new issuefor him. It's not just entering his consciousness now."

Twitter deal impacting Tesla

Stock in both Twitter and Tesla swung sharply in oppositedirections Friday afternoon, with Twitter's stock falling nearly nine per centand shares of Tesla, which Musk had proposed using to help fund theTwitter deal, rising about eightper cent.

Shares of Teslahave tumbled since it was revealed thesocial platform had become a Musk target.

Tesla shares have lost a quarter of their value in the lastmonth, and have fallen from about $1,150 US in early April when Muskconfirmed he had taken a huge stake in Twitter, to $785.25 US Friday.

"It's become much more expensive for him to buy this companyusing his Tesla shares," Silver said.

WATCH |Elon Musk says $44B Twitter deal 'temporarily on hold':

Elon Musk says $44B Twitter deal 'temporarily on hold'

2 years ago

Duration 4:08

Elon Musk says his planned $44 billion US purchase of Twitter is 'temporarily on hold' pending details on spam and fake accounts on the social media platform, but he is 'still committed to acquisition.'

Musk's net worth, estimated by Forbes earlier this week at $240billion US, has fallen to $223 billion as of Friday.

Tesla shares may have benefited from Twitter bot accounts overthe years as well. A University of Maryland researcher recentlyconcluded that such bots have been used to generate hundreds ofthousands of positive tweets about Tesla, potentially buoying itsstock in years when it was under pressure.

Neither Tesla nor its supporters have taken responsibility forthose bots.

Investors have had to weigh legal troubles for Musk, as well as the possibility that acquiring Twitter could be a distraction from running the world's most valuable automaker.

The proposed dealcontinued to pressure shares of Tesla, which had already fallen 16 per centthis week. The sharp jump in the price of Tesla shares before the openingbell Friday signalledrising doubts that the acquisition of Twitterwill take place.

Musk has already sold off more than $8 billion worth of his Teslashares to finance the purchase.

Originally Musk had committed to borrowing $12.5 billion withTesla stock as collateral to buy Twitter. He also would borrow $13billion from banks and put up $21 billion in Tesla equity.

Last week, Musk strengthened the equity stake in his offer forTwitter with commitments of more than $7 billion from a diversegroup of investors, including Silicon Valley heavy hitters likeOracle co-founder Larry Ellison.

Money from the new investors cuts the amount borrowed on thevalue of Tesla stock to $6.25 billion, according to the filing.

Musk's history of sending markets into frenzy

Wedbush analyst Dan Ives, who follows both Tesla and Twitter,said Musk's "bizarre" tweet will lead Wall Street to either thinkthe deal is likely falling apart, Musk is attempting to negotiate alower deal priceor he is simply walking away from the deal with a$1 billion US penalty.

"Many will view this as Musk using this Twitter filing/spamaccounts [excuse] as a way to get out of this deal in a vastly changingmarket," Ives wrote.

Musk agreed to purchase Twitter for $54.20 US per share. As of Friday afternoon, the price of a share sits around $40.

He added that Musk's use of Twitter, rather than a financialfiling, to make the announcement was troubling, and "sends this wholedeal into a circus show with many questions and no concrete answersas to the path of this deal going forward."

Using Twitter to make a major announcement that moved the shareprices of two companies could be problematic for Musk. Under a 2018securities fraud settlement with the SEC, Musk has to get approvalfrom a Tesla lawyer before tweeting anything that could influencethe company's share price. It wasn't clear whether Musk got suchapproval for his 5:44 a.m. EDT tweet Friday announcing suspension ofthe Twitter deal.

The SEC already has issued subpoenas to Tesla and Musk over atweet from last fall asking followers if he should sell Tesla stock.

A court filing says Musk didn't get the required pre-approval.Last month, a federal judge in New York rejected Musk's attemptto throw out the settlement on grounds that he signed it underduress and that it violates his right to free speech. The judge alsoupheld the Musk subpoena.

The dispute stemmed from an October 2018 agreement with the SECthat Musk signed. He and Tesla each agreed to pay $20 million USincivil fines over Musk's tweets about having the "funding secured"to take Tesla private at $420 per share. But the funding was notlined up and Tesla remains a public company.

On Thursday, Twitter fired two of its top managers. Twitter saidthe company is pausing most hiring, except for critical roles, andis "pulling back on non-labour costs to ensure we are beingresponsible and efficient."

In a memo sent to employees and confirmed by Twitter, CEO Parag Agrawal said the company has not hit growth and revenue milestones after the company began to invest "aggressively" to expand its user base and revenue.