Whatever Happened To Elon's Twitter Deal Now?

In early April, Elon surprised the world when he announced that he had acquired a 9.2% stake in Twitter. At first, he played it cool and didn’t make it clear whether he wanted to buy the company or not.

Many speculated that Elon was just trying to join the Twitter board so that he could influence decisions at the company without taking over the entire company. The fact that Twitter capped his stake at 15% just made it even less likely that Elon would attempt a takeover.

But, despite all that, it didn’t take long for Elon to make a buyout offer for $41.39 billion. And board would eventually accept a bid for$44 billion. Elon instantly went ahead and sold off his Tesla stock and secured billions of dollars worth of loans to pay for Twitter.

All of this unfolded within a month, so it seemed like both Elon and Twitter wanted to get this deal done ASAP. But, at this point, it’s been nearly 2 months since Elon secured funding for the Twitter deal, and we’ve seen virtually no progress. Not to mention, Twitter stock hasn’t been doing that great either which is not the best of signs.

If Elon’s deal does end up taking place, he’d be buying each share of Twitter for $54.20. So, buying Twitter shares under this price is basically just free profit as long as the deal goes through.

But, right now, Twitter stands at just $39.41 meaning that you’d profit 37% if the deal goes through at the original price. Given that the stock has sold off so much though, it doesn’t look like the market is super confident that the deal will end up taking place atleast not at the original price.

So, what happened to Elon’s Twitter deal?

FAKE ACCOUNTS:

Starting off with the most noted concern, Elon is worried about how many fake accounts are on Twitter. In terms of fake accounts, we have two main categories which are inactive accounts and spam bots.

Inactive accounts are self explanatory. These are accounts that were created years ago, and the user has since stopped using Twitter or they have switched to another account. But this is not what Elon is really talking about, his primary concern with fake accounts is spambots.

Us YouTube people are extremely familiar with these. There’s probably some crypto expert in the comments section down below named Mary Jane who 40 people are willing to vouch for. Such spammers are generally account for an extremely small portion of social media.

However, given that each spammer operates 30 to 50 accounts, they actually make up a decent amount of the total accounts. Twitter says that fake accounts make up less than 5% of their daily active users, but being an avid Twitter user himself, Elon isn’t quite convinced.

But, what’s the big deal with fake accounts anyway? Sure, they’re a slight nuisance and it’s a shame that people fall for these scams, but it’s not worth halting an entire acquisition over right? Well, Elon thinks it is for a few reasons starting with the company’s business model.

Twitter makes money be selling ad slots on their platform just like most other social media platforms. But, if 10 or 20% of Twitter accounts are just bots, advertisers would be wasting a significant number of impressions on useless accounts.

This would in turn lead to lower conversion rates which would lead to less advertisers wanting to market on Twitter and eventually less revenue for Twitter. Aside from less ad revenue, bots also ruin Twitter’s credibility.

Elon wants to make Twitter into this super righteous place where free speech is supported and people can engage in intellectual discussions about social issues. But, people won’t exactly be enthused to do this if a bunch of the platform is just bots.

So, for Elon, dealing with the fake accounts is a matter of protecting Twitter’s credibility amongst advertisers and users, and consequently, he’s taking it pretty seriously. Elon has requested a detailed report that goes through how Twitter is determining how

many bots there are, but Twitter has been reluctant to hand over these details. The most likely reason for this is that they simply don’t have the details or they’re not confident about the details that they

do have.

Twitter’s CEO, Parag, was pretty upfront about how it’s extremely challenging to differentiate between legit accounts with seemingly suspicious activity and spam accounts with seemingly legitimate activity. So, more likely than not, Twitter has been scrambling to find more evidence to support their claims before they hand over a more detailed report to Elon.

Honestly, I don’t think Elon would cancel the deal over bots, but if there are more bots than Twitter initially claimed, Elon may try to use this as a negotiating point to drive down the acquisition price.

FINANCING CONTINGENCIES:

Though Elon has secured most of the funding required to buy Twitter, he doesn’t quite have it all. At the time of making this video, Elon has committed to paying $33.5 billion in cash and he has secured $7.1 billion worth of equity based financing.

But, this only adds about to $40.6 billion meaning that he’s still $3.4 billion short from the $44 billion acquisition price. Elon has vaguely stated that the remaining amount will also come from various loans, but the specifics have yet to be finalized.

At one point, he was in talks with a group of private equity firms to raise $2 to $3 billion. But, this wasn’t to make up for the disparity. This was to reduce the amount of cash Elon would have to put up.

Maybe Elon’s goal is to shave down the acquisition price by 10% and pay no more than $40 billion for Twitter. Aside from not securing the final amount, Elon has become much more cautious when it comes to equity based financing.

In May, he was working on getting a $12.5 billion margin loan based on his Tesla stock, but he has since scrapped the idea. This is likely due to the stock market and Tesla stock getting crushed since he made the deal with Twitter.

Since April, Tesla stock has sold of 45%. To make things worse, it seems like Elon is forecasting some potentially painful quarters to come for Tesla. Recently, he announced plans for laying off 10% of their salaried workforce.

APPROVAL

The points that we’ve discussed so far are completely under Elon’s control. At any point, he could just decide to proceed despite the fake accounts. And as for the financing, he could just sell off some more Tesla stock if he really needed to.

But, even if Elon was willing to do this, it’s not like he could complete the deal right now anyway because there are external factors that are out of his control. First of all, we have the HSR Act or the Hart-Scott-Rodino Act.

Like with any piece of legislation, the HSR act has a bunch of stipulations and conditions. But, the part that applies to the Twitter deal is the 30 day waiting period. Whenever a merger or acquisition of a certain magnitude is proposed, the deal has to be reviewed by the Federal Trade Commission and

the US Department of Justice.

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