Musk says Twitter deal “on hold” over concern about number of spam accounts

In this photo illustration, Elon Musk's twitter account is displayed on a smartphone in front of a background with the twitter logo.
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Elon Musk today said his deal to purchase Twitter is “temporarily on hold” while he awaits details on the number of spam and fake accounts on the site, but he later added that he remains “committed” to the acquisition.

“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5 percent of users,” Musk wrote in a tweet Monday morning. In a follow-up tweet two hours later, he wrote, “Still committed to acquisition.”

The first tweet saying that the deal is “on hold” included a link to a May 2 Reuters article noting that Twitter had “estimated in a filing… that false or spam accounts represented fewer than 5 percent of its monetizable daily active users during the first quarter.”

Twitter shares reportedly fell more than 20 percent in premarket trading after Musk’s initial tweet but gained much of that back after Musk said he’s still committed to the deal. Twitter shares were down about 8 percent in today’s trading as of this writing.

Musk could renegotiate price or back out

While Musk could back out of the Twitter deal and pay a $1 billion breakup fee, he could also renegotiate the price. The Wall Street Journal wrote today:

Mr. Musk might be using Twitter’s recent disclosure as a means to get out of or renegotiate the deal, said Daniel Ives, a technology analyst at Wedbush Securities. One reason is the impact on Tesla shares since the deal was announced.

“Leveraging his stock and potential sales of Tesla is a huge overhang on the stock,” Mr. Ives said.

Tesla shares “have fallen 29 percent over the past month through Thursday,” the WSJ report noted.

Musk has more fake followers than similar accounts

Musk has said his priorities as Twitter owner will include “defeating the spam bots and authenticating all humans.” SparkToro, which makes a “Fake Followers Audit” tool, says its research suggests that 5 to 30 percent of followers on Twitter are fake. That includes “bots, spam accounts, inactive users, propaganda, or other non-engaged/non-real users.”

The number of fake followers is generally much bigger for high-profile accounts such as Musk’s. Nearly 58 percent of Musk’s followers are fake, according to a check of his account using the SparkToro tool today. That amounts to nearly 53 million accounts following Musk “that are unreachable and will not see the account’s tweets (either because they’re spam, bots, propaganda, etc. or because they’re no longer active on Twitter).”

“Accounts with a similar sized following to @elonmusk have a median of 41 percent fake followers. This account has more fake followers than most,” SparkToro says.

Twitter’s spam-account estimate is uncertain

SparkToro’s estimates include inactive accounts that Twitter does not count in its tally of monetizable daily active users, or mDAU. Twitter defines that as “people, organizations, or other accounts who logged in or were otherwise authenticated and accessed Twitter on any given day through twitter.com or Twitter applications that are able to show ads, or paid Twitter products, including subscriptions.”

Twitter’s recent Securities and Exchange Commission filing said, “We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the first quarter of 2022 represented fewer than 5 percent of our mDAU during the quarter.” Twitter said this estimate was made using “significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated.”

Twitter’s filing added that the company is “continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our mDAU” and that it has “made improvements in our spam detection capabilities that have resulted in the suspension of a large number of spam, malicious automation, and fake accounts.”

“Significant risk that the deal gets repriced lower”

There was already speculation that Musk would try to renegotiate the deal even before his tweets today. Hindenburg Research LLC recently said there is “a significant risk that the deal gets repriced lower.”

“We are supportive of Musk’s efforts to take the company private, and believe he could get it done, but see no reason why he should at these levels,” Hindenburg wrote, according to a Bloomberg article on Monday.

Musk’s $44 billion deal to buy Twitter—which is pending shareholder and regulatory approvals—amounts to $54.20 per share. Twitter’s price was $51.70 at market close on April 25, the day Musk and Twitter’s board announced their deal. The price was down to about $41.50 as of this writing.

A Wall Street Journal analysis said the deal’s completion is “no sure thing” and that Musk could easily walk away from it. “The merger agreement contains a reverse termination fee of $1 billion should Mr. Musk fail to consummate the deal,” the article said. “Such penalties are hardly get-out-of-jail-free cards, especially since a buyer can’t just walk away for no reason. In this case, though, he effectively can: Buried at the end of the agreement is the language about Twitter’s legal remedies. Incredibly, the potential damages are capped at the level of the reverse termination fee.”

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