Yeah, they’re going way too far in squashing dissenting opinions

— Elon Musk (@elonmusk) July 5, 2022

…it’ll be a curio, not a portent of a new conservative-friendly platform in the making.

This afternoon brings news that the deal with Twitter is on life support, ostensibly because Musk can’t get satisfaction from the company on the share of users that are bots. Twitter held a media briefing this morning alleging that bots make up only five percent or so of its user base, a figure it derived from various calculations:

Twitter executives said Thursday in a media briefing that the company manually reviews thousands of accounts each quarter to determine the 5% number, and estimates that the actual number is well below what’s disclosed in filings. The company also uses internal data to confirm the bot number, including things like IP addresses or phone numbers to determine if an account is run by a human.

Musk has demanded an audit of Twitter’s estimates. Twitter reiterated that they are sharing some data with Musk, and working with his team within the confines of the purchase agreement. An executive declined to comment on what data was being shared with Musk, but said that the company does not share internal data with outsiders due to privacy concerns.

Twitter going public with its methodology was a clue that their standoff with Musk, which has been ongoing since May, hasn’t been resolved and that the dispute is about to reach a more acrimonious public stage. Sure enough, WaPo reported a few hours ago that the acquisition is in jeopardy:

Musk’s team has stopped engaging in certain discussions around funding for the $44 billion deal, including with a party named as a likely backer, one of the people said. The people spoke on the condition of anonymity because of the sensitivity of the ongoing discussions.

Talks with investors have cooled in recent weeks as Musk’s camp has raised doubts about the recent data “fire hose” — a trove of data sold to corporate customers — they received from Twitter. Musk’s team’s doubts about the spam figures signal they believe they do not have enough information to evaluate Twitter’s prospects as a business, the people said.

Now that Musk’s team has concluded Twitter’s figures on spam accounts are not verifiable, one of the people said, it is expected to take potentially drastic action.

That’s super, but the time to care about bots is past. Bloomberg analyst Matt Levine, who’s been skeptical of Musk’s motives with this deal, reminded the world this afternoon that due diligence is something you do *before* you make your offer, so that you know what sort of value you’re getting for your money. Instead, Musk plowed ahead and signed a deal sight unseen.

you do due diligence to decide if you want to buy the company. then, having decided, you sign an agreement to buy the company. at this point due diligence is over because you have made your decision.

— Matt Levine (@matt_levine) July 7, 2022

the reason that elon musk can't get out of the deal over the bots thing is not that he "waived due diligence." it's that he SIGNED A BINDING AGREEMENT TO BUY TWITTER, and that agreement does not have any outs for "i think there are too many bots."

— Matt Levine (@matt_levine) July 7, 2022

If you were about to buy a million-dollar home, you’d insist on a thorough inspection despite the seller’s assurances that everything was shipshape before you signed. Musk’s purchase of Twitter is many orders of magnitude more expensive than that, yet in his haste to make a splash he decided that no inspection was necessary and committed anyway.

Which means Twitter’s bot problem sounds like more of an “Elon Musk problem” at this point than a “Twitter problem.”

Twitter’s options aren’t good. They can try to renegotiate the sale price with Musk, but that would mean billions less than he offered to pay originally — and he could always try to find an excuse to quit that deal too. They could cancel the deal altogether and demand a termination fee from him, but under the terms of the deal that fee would be a mere $1 billion, insignificant to both sides. The nuclear option would be to sue for so-called “specific performance,” convincing a court to order Musk to complete the purchase at the originally agreed-upon price. But Levine argued back in May that that’s easier said than done, as Musk and his army of lawyers have practice at dodging court orders.

WaPo seems to think Twitter will go nuclear, warning of “a massive legal battle” to come. Experts told the paper that one issue that will determine whether a court will require specific performance is whether Musk’s reason for backing out of the deal has to do with Twitter’s “fundamental business.” Even if the judge deems that it does, though, doesn’t Musk’s disinterest in the particulars of that “fundamental business” prior to agreeing to terms mean he’s waived his right to raise it as a concern now?

If bots aren’t Musk’s true motive in tanking the deal, what is? Well, remember that he made his offer to buy Twitter on April 14, when Tesla’s value was upwards of $1,000 per share:

Twitter’s value during the same period stood at around $45 per share:

Both companies have taken a hit since then, making the purchase far less comfortable for Musk. His offer of $54.20 per share is hard to justify now that Twitter is chugging along at around 38 bucks a pop. Meanwhile, the value of Musk’s Tesla shares has dropped by more than 25 percent, potentially jeopardizing his financing. He’s overpaying, and he’s doing so with less money in the bank than he used to have. Et voila — suddenly “bots” have become a dealbreaker for him. We’ll see what a court says.