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Twitter’s Problem – Can It Force Elon Musk To Buy?

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Updated 18 May 2022

Key points:

Twitter (NASDAQ: TWTR) stock is well below the $54.20 bid at which Elon Musk has said he’s willing – or was willing – to buy the company. This almost always means that the market has some doubt about whether a bid will in fact go through – that’s just what the target stock being well below the bid price means.

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Elon Musk has said that the bid is now on hold subject to Twitter showing that ‘bots and fakes are 5% of fewer of all accounts. This could be seen as a retreat – or it could be seen as clever game playing. So it’s worth unpacking what the problem is here.

Whether Twitter actually has fewer or more than 5% of all accounts being ‘bots etc doesn’t in fact matter. There’s fuss to be made – fuss is being made – over whether if that number’s higher than advertisers have been ripped off. But that is just fuss being made. No advertiser, after the first couple of runs at any advertising outlet, does in fact calculate effectiveness by such numbers. Sure, there are some ‘bots out there but that’s not the calculation at all. It is, instead, “We spent this much money for this result”. Twitter could be 50% ‘bots, or 1% ‘bots, and that wouldn’t change the result of that calculation. So in this grander sense, it’s not in fact a problem at all.

But this then brings us to the tactics of the Elon Musk bid. He can definitely go through with it if he desires to. He’s raised equity capital himself, already owns nearly 10% of Twitter stock. He’s got the backing – they’ll follow him into a stockholding in the new private company – of other major shareholders. He’s got the debt lined up. He can do this.

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Twitter has also, in effect, agreed to be taken over. Which is where the negotiation really just begins in this instance. The bid includes a $1 billion “breakup fee”. That is, if Musk walks away then he’s got to pay Twitter $1 billion. That makes Musk very interested in continuing the bid of course. But it doesn’t force him to complete, just makes him interested in doing so.

But what if Musk can, now, renegotiate that takeout price downwards? A little like that old joke of sleeping with someone for a million or for £10? If the answer to the first is yes then we’ve established the principle, now we’re just haggling on the price.

The haggle here revolving around that ‘bots percentage. At the large scale, as above, it doesn’t matter. But Twitter has used it in SEC releases, their number of 5%. That makes it – arguably, at least – a “material factor” in the valuation of Twitter. Just because it’s in official releases through the SEC.

So, how much of this pursuit of the true ‘bots number is Elon Musk looking for a way to retreat from buying Twitter and how much is it just part of negotiating the price down?

Twitter’s real problem here is that now they’ve conceded the principle, agreed to be bought, that’s all there is left, that haggling over the price. And the percentage of ‘bots gives Musk the opportunity to argue that without having to pay the $1 billion breakup fee if he does walk. Or at least, threaten to do so.

Twitter’s problem is that they cannot force Elon Musk to buy, even though they’ve agreed to be bought – that does mean there’s still some haggling to be done over the price.