There is nothing new about Musk tweets moving markets. However, this time it could affect the Twitter acquisition deal.

Elon Musk on Friday tweeted that his $44 billion purchase for Twitter Inc was “temporarily on hold” while he awaited data on the number of spam bot accounts, sending the social media platform’s stock plummeting.

Also read: $44 billion Twitter deal temporarily on hold, tweets Elon Musk

Musk mandate

Tesla CEO Musk, who added that he was still committed to the acquisition, opted to forego due diligence when he agreed to buy Twitter on April 25 in an attempt to persuade the San Francisco-based company to accept his “best and final offer.”

Since then, technology stocks have plummeted due to market concerns about inflation and a possible economic downturn.

As investors worried that the slump would drive Musk to walk or seek a lower price, the difference between the offer price and the value of Twitter shares expanded in recent days, signifying less than a 50% likelihood of completion.

Also read: The big short: Is Elon Musk going to renegotiate Twitter deal?

“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk tweeted at his more than 92 million followers.

In a later tweet, he reassured that he was “still committed to acquisition.”

Twitter did not reply immediately to a request for comment. The investors Musk recruited last week to raise $7.1 billion in fundraising had no immediate reaction.

Musk shared a Reuters piece dated May 2 that included the phoney account numbers. Twitter has stated that the figures are estimates and that the true number could be higher.

Shares plunge

According to Twitter’s regulatory filings, the estimated number of spam accounts on the microblogging site has remained below 5% since 2013, prompting some analysts to wonder why Musk was upping it now.

“This 5% metric has been out for some time. He clearly would have already seen it… So it may well be more part of the strategy to lower the price,” Hargreaves Lansdown analyst Susannah Streeter remarked.

Also read: Twitter exec on paternity leave fired, remains ‘insanely proud’ of team

Twitter shares were down 16 percent in pre-market trading in New York, trading at $38.06, well below the $54.20 per share purchase price. Tesla Inc shares were up almost 5%.

Tesla shares have lost roughly a quarter of their value since Musk declared a stake in Twitter on April 4, amid concerns that he will become distracted as Tesla’s CEO and that he may have to sell further Tesla shares to fund the deal.

There is plenty of precedent for a possible price renegotiation following a market slump. When the COVID-19 pandemic broke out in 2020, causing a global economic shock, several firms repriced agreed-upon acquisitions.

Also read: Elon Musk’s growing legal issues lead to drop in Twitter, Tesla shares

In one case, French retailer LVMH threatened to cancel an agreement with Tiffany & Co. The jewellery retailer in the United States agreed to reduce the price by $425 million to $15.8 billion.

Acquirers looking for a way out may invoke “material adverse effect” clauses in their merger agreement, claiming that the target firm has been significantly harmed.

However, the language in the Twitter transaction agreement, as in many previous mergers, does not allow Musk to walk away due to a deteriorating business climate, like a decline in advertising demand or a drop in Twitter’s stock price.

If Musk does not complete the purchase, he is contractually compelled to pay Twitter a $1 billion breakup fee, and the language in the deal contract appears to limit any damages that Twitter can seek from Musk to that amount.

However, the contract includes a “specific performance” language that a judge can invoke to compel Musk to finish the transaction.

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In practise, acquirers who lose a specific performance case are almost never required to complete an acquisition and instead usually reach a monetary settlement with their targets.

Battle of bots

Musk has stated that if he purchases Twitter, he will “will defeat the spam bots or die trying,” blaming the company’s reliance on advertising for allowing spam bots to proliferate.

He has also criticised Twitter’s moderation policy, stating that he wants Twitter’s algorithm to emphasise public messages and is opposed to corporations wielding too much control on the service.

Nonetheless, according to slides provided to investors and reported by the New York Times, Musk expects advertising revenue to more than treble by 2028.

Also read: Musk ‘would reverse the permanent ban’ on Trump when he own Twitter

According to the investor presentation, ads are likely to account for approximately 45 percent of Twitter’s total revenue by that time, down from nearly all of its revenue currently.

Musk claimed earlier this week that if he acquires Twitter, he will lift the ban on former US President Donald Trump, showing his intention to reduce moderation.