Elon Musk's bold ambition to acquire Twitter for $44 billion slid into disarray Friday, with the deal put on hold due to the bane of internet surfers: spam and fake accounts. Twitter stock dropped.
The Twitter deal is "temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users," Musk, chief executive of Tesla, said in a tweet. He added that he is "still committed to (the) acquisition." Musk previously said that ridding the platform of fake accounts, bots and spam would be one of his top priorities.
Twitter stock dropped 9.7%, closing at 40.72 on the stock market today. Meanwhile, Tesla stock raced higher as investors hope the deal will tank. Tesla shares rose 5.7% to 769.59.
"The nature of Musk creating so much uncertainty in a tweet (and not a filing) is very troubling to us and the Street," Wedbush analyst Dan Ives said in a note to clients. "It now sends this whole deal into a circus show with many questions and no concrete answers as to the path of this deal going forward."
Many will view this as Musk using spam and fake accounts, in addition to bots, as a way to get out of this deal in a vastly changing market, Ives said.
A Circus Show On Friday The 13th
"The implications of this tweet will send this Twitter circus show into a Friday the 13th horror show as now the Street will view this deal as 1) likely falling apart, 2) Musk negotiating for a lower deal price, or 3) Musk simply walking away from the deal with a $1 billion breakup fee."
Possibly the biggest reason Musk might jettison Twitter has to do with Tesla stock. After agreeing to buy Twitter, Musk has had to sell about $8.5 billion worth of Tesla stock.
Not counting today's jump, Tesla stock was down 29% since Musk, in mid-April, revealed he had purchased a 9.1% stake in Twitter. He then announced a plan to acquire all outstanding shares of Twitter that he didn't own at $64.20 a share. He made the offer on April 14 and the Twitter board agreed to it on April 25.
Twitter Stock: China And EU Woes
Another possible reason Musk might back out of the deal is China, where Tesla produces half of its vehicles. Musk, a self-proclaimed "free-speech absolutist," could inflame China government regulators with his Twitter policies.
Musk also would face government scrutiny in Europe. The European Union recently approved new legislation that would pressure big tech giants like Alphabet and Twitter to remove any illegal content on their platforms or risk paying billions in fines or being banned. The Digital Services Act requires companies to more aggressively police their content and take down anything deemed harmful or illegal quickly.
Another reason to abandon the Twitter deal would be criticism thrown at Musk and the distraction that would cause him. While legions of fans support Musk, an equally large group opposes the deal and has been harshly critical of the billionaire. Tesla stock dropped on the first day his interest in Twitter was disclosed. Analysts said they were concerned over the distraction it could cause, to the detriment of Tesla.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
