In the latest turn of events, billionaire Elon Musk has threatened to walk out of the Twitter (TWTR) buyout deal if the social media company does not heed his request to share appropriate data on the number of bots on its platform. TWTR stock plunged as much as 5.7% on the news before ending the day down 1.5% at $39.56 on June 6.
Musk Threatens to Walk Out
Musk’s lawyer, Mike Ringler, sent a letter to Twitter Chief Legal Officer Vijaya Gadde, which said, “Mr. Musk believes the company is actively resisting and thwarting his information rights” by not sharing information to undertake his own calculation of the actual bot size on Twitter.
Musk has claimed that he is not confident in Twitter’s methodologies to calculate fake accounts and wants to undertake his own diligence. Musk has already put the Twitter deal on temporary hold until the bot issue is resolved.
However, restraint from the microblogging site to share data has irked the bidder so much so that Ringler is calling it a material breach of obligations, stating that Musk retains his right “not to consummate the transaction and his right to terminate the merger agreement.”
Meanwhile, a Twitter spokesperson has said that the company will continue to “cooperatively share information with Mr. Musk to consummate the transaction in accordance with the terms of the merger agreement.” The company is determined to close the acquisition at the agreed-upon price and terms.
According to Ringler’s letter, at Musk’s request, Twitter had shared the spam related data on June 1, which was simply “additional details regarding the company’s own testing methodologies,” and did not provide any information through which Musk’s team could facilitate the credibility of the actual number of bots in the monetized daily active users (mDAUs).
Although Twitter has stated that it is cooperating with Musk on all matters that are pertinent to facilitating the closing of the transaction, Musk’s lawyer has clearly stated that “Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover.”
Twitterati Respond
Musk has a huge following on Twitter, and many are hinting that the billionaire is simply finding excuses to turn away from the deal. Meanwhile, several others are lambasting Twitter for failing to comply with Musk’s requests, which may ultimately prove to be in their best interest. There is also speculation that Musk is trying to lower the bid price by bringing up the whole fake accounts issue.
Wedbush analyst Daniel Ives has closely followed each of Musk’s moves in the entire saga and views his latest move as a trick to “walk away from deal.”
Ives further added that after walking out of the deal, Musk will pay the “$1 billion breakup fee; Twitter Board will fight this clearly. Help remove a major overhang on Tesla; Twitter stock be under pressure.”
Meanwhile, renowned investment advisor and CEO of GK ETF, Ross Gerber, Tweeted, “From my understanding and research on bot/fake accounts on Twitter. No one knows and there is no way to really tell as millions of accounts are created and deleted each week and its impossible to really track or define what is fake or a bot. We know its a decent amount.”
Twitter Stock Prediction
Amid the chaos, analysts on the Street have put the TWTR stock on a Hold consensus rating based on one Buy and 25 Holds. The average Twitter price forecast of $51.72 implies 30.7% upside potential to current levels. TWTR stock has lost 7.3% so far this year.
Hedge Funds
Notably, TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Twitter is currently Very Negative, despite Musk’s much-awaited buyout. In all, 20 hedge funds decreased their cumulative holdings of TWTR stock by 15.1 million shares in the last quarter.
Closing Thoughts
Although Musk has confirmed his commitment to the Twitter buyout on previous occasions, yesterday’s letter spells a different story. Only time will tell if Twitter bows to Musk’s pressure and shares the relevant information or takes an opposing stance and accuses Musk of failing to comply with the deal.
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