Why Elon Musk can pause his takeover bid at any time without penalty

Why Elon Musk can pause his takeover bid at any time without penalty

Elon Musk does not want to be remembered as the author of one of the most untimely acquisitions in history.
Since it announced its entry into the Twitter directory with 9.2% on April 4, to later present a Public Acquisition Offer (OPA) for 100% of the social network, the Nasdaq index of technology companies has fallen between 18% and up to 21%.

However, Twitter had resisted on the stock market during these weeks, having the support of the OPA in Musk’s eyes, at US$54.2 per share. Now, this network has been holed by Musk himself, who has said that the offer on Twitter is on hold. The company’s shares fell as much as 8% on Wall Street to $40.

The market already had doubts about the takeover bid, taking into account the traditional volatility in Musk’s intentions, who once threatened to launch an offer for Tesla’s minority interests, which he never fulfilled.
Bearish investor Hindenburg Research said last week that Musk has “all the cards in hand” in the Twitter takeover bid, so he may lower the price to accommodate the Nasdaq correction.

After the message released on Friday, the possibility of a renegotiation seems to gain strength. Musk can tell Twitter’s board to either accept a lower price or back out altogether. In this case, he would have to pay compensation of US$1 billion, which is low compared to the premium Musk can pay if he keeps the US$54.2 (US$44 billion in total).

US law allows this change in the conditions of the OPA, since Musk has not yet formalized the ‘Transaction Proxy Statement’ with the SEC‘, a document in which he must ask the shareholders of Twitter to support his offer, if he finally goes ahead.

Banks and investors who have pledged their support for the takeover bid (including Morgan Stanley, Brookfield and Fidelity) may also welcome a downward adjustment in the takeover price that limits the risk they take on.
However, these same firms could see worse a total withdrawal that leaves them as participants in a new controversial maneuver of the founder of Tesla.

Still committed to acquisition

— Elon Musk (@elonmusk) May 13, 2022

The billionaire initially tweeted early saying the $44 billion deal is pending until he receives more information about the proportion of fake accounts on the social media site, sending shares lower.

A few hours later, he sent another tweet saying he is “still committed” to the deal. Twitter stocks rallied and part of their losses were reduced.

Musk said he was awaiting details on a recent Twitter filing that fake accounts on the social media platform accounted for less than 5% of its users. The social network explained in its latest quarterly results “that the average number of fake or spam accounts during the first quarter of 2022 represented less than 5% of our monthly daily active users during the quarter.”

But this data point has been a part of Twitter’s quarterly filings for nearly a decade. The company detailed that it applied a “significant judgment” to its latest estimate, and that the real number could be higher.

Fighting fake accounts has been a cornerstone of Musk’s attempt to reform Twitter. In a statement he announced his agreement to buy the company last month, he revealed that he wanted to defeat spam bots, authenticate all humans and make his algorithms open source. Which is only part of his ideas.



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