Elon Musk has put his takeover of Twitter “temporarily on hold” over concerns about the number of spam and fake accounts on the social media platform, raising fresh doubt over whether the Tesla chief executive will complete the $ 44bn deal.
The billionaire entrepreneur said on Twitter on Friday that the deal was being held “pending details supporting” a calculation in the company’s regulatory filings suggesting that the number of fake accounts on the platform represents under 5 per cent of its 229mn users.
The estimation was included in the company’s quarterly filing last week. The same calculation has also been reported in each quarterly filing going back to 2014.
The statement immediately hit Twitter’s share price, with the stock tumbling about 20 per cent in pre-market US trading.
Musk followed up with an additional tweet two hours later in which he said he was “still committed to acquisition”. That helped shares pare their losses, leaving them down almost 10 per cent, closing at $ 40.72 on Friday.
Twitter deal temporarily on hold pending details supporting calculation that spam / fake accounts do indeed represent less than 5% of usershttps: //t.co/Y2t0QMuuyn
– Elon Musk (@elonmusk) May 13, 2022
It is unclear what the legal effect of his notice was and precisely what grounds he has to place the deal on hold.
The doubt introduced by Musk’s tweet is the latest example of the whirlwind manner in which the transaction came together, which even led to Musk waiving his right to carry out due diligence while negotiating terms.
Twitter and Musk did not immediately respond to a request for comment.
Twitter now trades at a 25 per cent discount to the $ 54.20-per-share price Musk agreed to pay in mid-April, signaling that investors do not believe a deal will happen anywhere near that price and possibly not at all.
Tesla shares, which have fallen 33 percent since Musk said on Twitter that he was giving serious thought to buying the social media platform in late March, rallied more than 5 percent on Friday.
Musk has previously said one of his priorities for the platform is to “defeat the spam bots or die trying” and to authenticate human accounts.
In Twitter’s filings going back eight years, the company has said less than 5 per cent of its monetisable daily active users were fake or spam accounts.
“In making this determination, we applied 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 said in its latest quarterly filing.
Musk’s move comes just a day after Twitter chief executive Parag Agrawal announced an immediate hiring freeze, cost-cutting measures and the departure of two senior leaders. The company has faced long-term pressure from investors over slow growth compared to rivals such as Meta and TikTok.
In a Twitter thread on Friday, Agrawal addressed the changes, saying that he “expects the deal to close” but the company needs “to be prepared for all scenarios”.
The billionaire’s bid to buy Twitter sent shockwaves throughout the technology and financial world, though many speculated that Musk was not serious about the deal or that he would eventually walk away. The Tesla chief agreed to pay a $ 1bn break fee if he abandoned the agreement.
Daniel Ives, strategist at Wedbush Securities, wrote in an analyst note: “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 break-up fee. ”