Why Musk froze the Twitter takeover

“Agreement temporarily suspended”. With a twitter, Elon Musk announced the interruption of a path that seemed to be very fast. He still says he is “still engaged in the acquisition” of Twitter, but the damage has already been done: the stock loses 9%. Musk says he took a break to gather more details on the impact of fake profiles and spam. But the timing and reasons for braking are not entirely convincing and could represent (also) something else.

The fake Twitter users

Even before receiving the green light to buy from the board of directors, Musk had indicated one of his priorities: “We will beat spam or die trying”, He tweeted on April 21st. It is therefore undeniable that the topic is close to his heart. And it is undeniable that he knew him well, also because (for years) it has been in the public domain.

In his tweet with which he announced the suspension of the deal, Musk relaunches a Reuters article in which it is estimated that fake accounts would be “less than 5%”. Release date: May 3. The source is by no means confidential: the data is contained in the Twitter quarterly, released in those hours: “We performed an internal review of a sample of accounts and we estimated that the average number of fake or spam accounts during the first quarter of 2022 accounted for less than 5% “.

Not only that: the company admits that the estimate is based on “wide discretion” and “may not accurately represent the actual actual number of fake or spam accounts”, which therefore “may be higher”.

The problem is serious, but it is nothing new

Twitter has a serious problem with fake accounts. They inflate the audience, but make interactions less meaningful and – consequently – less attractive to advertisers. Knowing how many real users are is essential, also because Musk has goals that are not defined as ambitious.

In the documents presented to investors and revealed by the New York Times, it aims to quintuple its turnover by 2028, to halve the share that comes from advertising (from over 90 to 45%). And most importantly: the average revenue per user should go from 24.8 to 30.2 dollars. The overall audience is crucial. But it is even more important that it is made up of authentic profiles, because they are worth more dollars than the others.

The importance of identifying the fakes is therefore not in question, but the timing of the declaration. In 2017, research from the universities of Southern California and Indiana estimated that bots made up between 9 and 15 percent of accounts. In 2018, SparkToro, a company that develops software applied to marketing, estimated that about half of the followers of highly followed profiles (from Obama to Trump to Musk) were tarot cards. In short: 5% of Twitter seems very conservative, but Musk did not discover it today or at the beginning of May.

Are fakes just a pretext?

The question, at this point, is: are fake users, at least in part, a pretext? No certainties, but on the one hand there is a known factor, which seems weak or, at least, not sufficient to block a 44 billion operation; on the other, many good reasons to brake.

To raise a figure of this size, even the richest man in the world has to make some sacrifices. Between personal resources, Tesla stock sales, investor commitments and credit lines, he has collected almost everything he needs. But according to Forbes, he still lacked $ 3 billion in early May.

Musk may be thinking of renegotiating the deal to get a more favorable price, not least because his claims and moves are helping to reduce the value of Twitter’s shares. It’s true: he loses too, but only in the amount that, at the moment, is already in his pockets. The amount that could save with a lower offer could be enough to recover. An unlikely but not impossible hypothesis.

The billions of reasons to give up

From a strictly financial point of view, there is certainly no shortage of reasons to give up the deal. Should they step back, Musk would have to pay a $ 1 billion penalty. Given the scale of the acquisition and its assets, small change. But beware of possible legal actions and sanctions: Twitter is still a publicly traded company and Musk’s ease with which he moves, talks and swings the stock is attackable. It has already happened: In mid-April, a group of Twitter shareholders sued Tesla’s boss for failing to promptly disclose the purchase of 9.2% of the company.

Then pay attention to the side effects on Tesla (and therefore on the wallet of his CEO). Since the Twitter board said yes to the offer, the company’s stock has lost more than 20%, while on the day of the freeze due to fake users it gains more than 5%. The message is clear: the market fears a disengagement, with energies diverted from its most profitable creature to the social network.

If the freedom of more complex than Mars

Nothing, to date, is taken for granted. The path to the Twitter takeover may stall or be more torturous than expected. The current agreement has an expiration: the transaction lapses if it is not closed by 24 October, with the possibility of an extension of another six months upon the occurrence of particular conditions (for example the doubts of the Antitrust authorities or the need for additional controls on the origin of the capital). One thing is certain: Elon Musk, the man who wants to get to Mars, confirms that managing social media and free speech online can be more complicated than sending a rocket into space.

By Editor

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