I think it is important to be clear here that Musk is lying. The spam bots are not why he is backing away from the deal, as you can tell from the fact that the spam bots are why he did the deal. He has produced no evidence at all that Twitter’s estimates are wrong, and certainly not that they are materially wrong or made in bad faith. (Musk can only get out of the deal if Twitter’s filings are wrong in a way that would cause a “material adverse effect” on Twitter, which is vanishingly unlikely.) His own supposed methodology for counting spam bots is laughable. Yesterday Twitter’s chief executive officer, Parag Agrawal, tweeted a thread explaining in general terms how Twitter estimates that fake accounts represent fewer than 5% of its count of active users, and how this analysis can’t be easily replicated by outsiders (because they don’t know which accounts are real, and also because they don’t know which accounts Twitter counts as daily active users). It seems clear that Agrawal’s thoughtful answer is basically correct. 1 Musk responded with a poop emoji.
More important, nothing has changed about the bot problem since Musk signed the merger agreement. Twitter has published the same qualified estimate — that fewer than 5% of monetizable accounts are fake — for the last eight years. Musk knew those estimates, and declined to do any nonpublic due diligence before signing the merger agreement. He knew about the spam bot problem before signing the merger agreement, as we know because he talked about it constantly, including while announcing the merger agreement. If he didn’t want to buy Twitter because there are spam bots, he should not have signed a contract to buy Twitter. No new information has come to light about spam bots in the last three weeks.
What has happened in the last three weeks? Well, the prices of tech stocks have gone down, making the $54.20 price that Musk agreed to look a bit rich. (Snap Inc., a social-media competitor to Twitter, is down more than 30% since Musk made his offer on April 13.) And the price of Tesla Inc. stock, which he is relying on to finance part of the purchase price, has also gone down, making him poorer and making the $54.20 price look even more expensive. (Tesla is down almost 30% since he made his offer.) So he is angling to reprice the deal for straightforward market reasons. But that is very clearly not allowed by the merger agreement that he signed: Public-company merger agreements allocate broad market risk to the buyer, and he can’t get out just because stocks went down.
Join the conversation as a VIP Member