What’s going on Elon? Twitter acquisition apparently “on hold”

Elon’s interest and the takeover bid:

Elon Musk seems to be genuinely excited about Twitter‘s potential. From getting closer to free speech ideals, to combating spam on the platform, to exploring new product features, to increasing trust and open sourcing its algorithms, he’s expressed excitement about creating and unlocking value. In Musk’s letter to the Chairman of Twitter’s board on April 14th, announcing his unsolicited takeover to take Twitter private, he said as much – “Twitter has extraordinary potential. I will unlock it.”

Twitter agrees to sell itself:

After a brief fight with Twitter’s board, Musk seemed to get what he wanted on April 25th when Twitter agreed to sell itself to him for his original offer of $54.20 a share, which valued the company at $44B. Over the next few days, Elon talked about some of his plans for the platform – including reviewing accounts Twitter has suspended, such as those of former US president Donald Trump. Twitter even started making some major changes to its executive team to prepare itself for the change of control over the next few months as the deal closes.

Elon’s Friday the 13th tweet putting deal “on hold”:

But a couple of weeks later, perhaps aptly on Friday the 13th, the saga took a new turn when Elon tweeted the following: “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users” He went on to invite his Twitter followers to estimate the portion of total users on Twitter which are represented by bots with the following tweet “To find out, my team will do a random sample of 100 followers of @twitter. I invite others to repeat the same process and see what they discover …” Twitter shares, which had been up around the $50 mark since the announcement of the takeover bid, went tumbling down to below $40 over the next few days, wiping 20% off Twitter’s market cap.

Back and forth between Elon and Twitter CEO Parag Agarwal:

Twitter’s current CEO responded on May 16th, saying in a series of tweets “…every quarter, we have estimated that <5% of reported mDAU for the quarter are spam accounts“, “We do this every quarter, and we have been doing this for many years”, “Our actual internal estimates for the last four quarters were all well under 5% – based on the methodology outlined above. The error margins on our estimates give us confidence in our public statements each quarter” and “Unfortunately, we don’t believe that this specific estimation can be performed externally, given the critical need to use both public and private information (which we can’t share). Externally, it’s not even possible to know which accounts are counted as mDAUs on any given day.”  

Also Read: Twitter CEO confident of low spam user count after Elon Musk put deal ‘on hold’

mDAU above refers to Monetizable Daily Active Users, which is a measure of how many users who visit Twitter daily are monetizable. This means that they have to be human rather than bots.

Musk responded to Parag‘s tweets with a “poop” emoji. Replying to @teslarati on Twitter on May 17th, Elon said the following: “20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher. My offer was based on Twitter’s SEC filings being accurate. Yesterday, Twitter’s CEO publicly refused to show proof of <5%. This deal cannot move forward until he does.” He also agreed with a follower who suggested that the SEC investigate Twitter based on its misleading filing.

Also Read: Musk’s Twitter and a socialism-capitalism debate: An employee speaks out

What Twitter said in its SEC filing in question:

This is what Twitter said in its SEC filing, its 10Q filed on May 2nd 2022 that Elon references:

“The numbers of mDAU presented in this Quarterly Report on Form 10-Q are based on internal company data. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring usage and engagement across our large number of total accounts around the world. Furthermore, our metrics may be impacted by our information quality efforts, which are our overall efforts to reduce malicious activity on the service, inclusive of spam, malicious automation, and fake accounts. For example, there are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the first quarter of 2022 represented fewer than 5% of our mDAU during the quarter. The false or spam accounts for a period represents the average of false or spam accounts in the samples during each monthly analysis period during the quarter. 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.”   

Also Read: ‘Not suggesting malice…’ Musk backtracks on Twitter manipulating users

The filing talks about the mDAU number as an internal estimate, and also adds that the estimate might be wrong. Twitter’s potentially inflated mDAU numbers have been a subject of open debate over many years, so it is difficult to imagine any of this is new information for Musk or his team. Musk himself has repeatedly referenced the bot issue before, during and after his takeover bid. So what is actually going on?

What’s going on Elon?

While Elon is likely still very interested in buying Twitter, he’s looking for a better deal. If one would take a cynical view, his open questioning of Twitter’s numbers is designed to deflate its stock price far below what he’s offered. This would open up the possibility of him being able to go back to the board and offer a price far below $54.20, maybe closer to $40. Even if he had to pay the “breakup” fees of $1B, which was negotiated as a part of the buyout agreement, this could still save him billions.

Elon hinted as much openly. In a tweet after announcing the deal was “on hold” he admitted he was “Still committed to acquisition”. 

Like any other capitalist, he’s just looking for a better deal.