Billionaire Elon Musk appears to be getting cold feet about buying Twitter for $44 billion.
On Thursday, The Washington Post reported that the deal is “in serious jeopardy.” Musk’s team thinks it won’t be able to confirm data about the number of fake and spam accounts on Twitter and has stopped having certain discussions around funding the acquisition, the Post said.
Twitter still plans to close the deal, and if Musk doesn’t follow through, it could set off a legal battle between the billionaire and the influential social media company.
Musk offered to purchase Twitter in April for $54.20 a share, but since then the social network’s stock price has tumbled. At the time, the price was a 38% premium to Twitter’s closing stock price on April 1 when the billionaire revealed he owns more than 9% of Twitter. Musk has said the deal can’t move forward until he gets proof that fewer than 5% of Twitter’s 229 million daily users in the first quarter were fake or spam-focused.
Musk’s lawyer Mike Ringler sent a letter to Twitter in June that said understanding this data is important for evaluating Twitter’s business. The social media platform makes most of its money from ads. Analysts, though, see this as an attempt by the billionaire to back out of the deal or try to lower the sales price. Ringler did not respond to a request for comment.
The deal still needs to be approved by Twitter shareholders at a special meeting. No date has yet been given for the meeting. Bloomberg reported that the vote would likely take place in late July or early August.
Here’s what you need to know about the ongoing saga between Musk and Twitter:
Why does Musk want to buy Twitter?
Musk is an avid user of the service but also one of its loudest critics.
Musk tweeted a poll to his followers in March that asked whether users believed Twitter was protecting free speech. He said the poll results, in which roughly 70% of 2 million respondents answered “no,” would be “very important.”
“Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy. What should be done?” Musk said in a follow-up tweet. Then he made an offer to buy Twitter, noting that he believed Twitter needed to be private to accomplish his goal.
The guarantee of free speech in the US Constitution’s First Amendment applies to the government censoring speech but not to companies such as Twitter, which have their own rules about what isn’t allowed on their sites.
Musk referenced free speech again when Twitter announced the deal in April. He also said he wanted to enhance Twitter with new features and promised he would make the service’s algorithms open source, defeat spam bots and authenticate all humans.
“Twitter has tremendous potential,” Musk wrote. “I look forward to working with the company and the community of users to unlock it.”
Progressives have criticized social media companies for failing to crack down on harmful content such as hate speech and harassment. Conservatives claim their speech is being censored. (Twitter has long denied allegations that it censors conservatives.)
On April 19, Musk tweeted that he thinks social media policies “are good if the most extreme 10% on the left and right are equally unhappy.” He also said he would reverse the ban on him who was booted from the platform after the Jan. 6 Capitol Hill riots because of concerns about inciting violence. Trump has said he doesn’t plan to return to Twitter even if the company lifts the ban.
What has Twitter’s response been?
Twitter says that it thinks closing the deal is in the best interest of shareholders.
“Twitter has and will continue to cooperatively share information with Mr. Musk to consummate the transaction in accordance with the terms of the merger agreement,” the company said in a June statement.
Initially, it seemed like Twitter was going to turn down the offer, but the board started to take it more seriously when Musk offered details about how he would finance the deal. The company had adopted a defensive strategy known as the “poison pill” that would make it tougher for Musk to add to his stake in the company. The tactic allowed Twitter to accept a competing offer, if one emerged.
Twitter co-founder Jack Dorsey tweeted on April 15 that “as a public company, twitter has always been ‘for sale.’ that’s the real issue.” Twitter has dealt with leadership changes, layoffs and activist investors as a public company. After Twitter announced the deal, Dorsey said he didn’t believe that anyone should own or run Twitter, but taking it back from Wall Street was the “correct first step.”
“Solving for the problem of it being a company however, Elon is the singular solution I trust,” Dorsey tweeted. “I trust his mission to extend the light of consciousness.”
A filing with the US Securities and Exchange Commission also shed more light on how the deal came together. Musk spoke to Twitter co-founder Jack Dorsey in March about the future of social media and decentralizing social media so users get more control over their data and what content they see.
Musk’s effort to acquire Twitter has been a bumpy one. Musk rejected a seat on Twitter’s board before offering to take the company private. Musk also had a conversation with Dorsey in early April in which Dorsey said he thought Twitter, a publicly traded company, would be better off as a private company, the filing shows.
How would Musk pay for Twitter?
Even for Musk, who’s worth about $220 billion, buying Twitter requires some financial juggling.
In an initial SEC filing on April 20, Musk said he had personally committed about $21 billion in equity financing. He also secured about $25.5 billion in debt financing through Morgan Stanley and other financial institutions.
Since then, Musk has raised capital by selling $8.5 billion in Tesla shares, presumably for the deal, and lined up $7.1 billion from outside investors. According to a May 4 filing, those investors include Sequoia Capital and Oracle co-founder Larry Ellison. (Ellison sits on Tesla’s board of directors.) Saudi Arabian investor Prince Alwaleed bin Talal Bin Abdulaziz Alsaud also agreed to pledge his stake of roughly 35 million shares to the deal.
On May 24, Musk pledged more equity to the deal. He’s now willing to put $33.5 billion toward the acquisition.
What happens next?
The deal still needs to be approved by shareholders, and there is speculation that Musk could back out. Terminating the deal, though, would cost Musk $1 billion because of a termination fee that’s part of the agreement, according to an SEC filing on April 25.
Musk is trying to make the case, though, that Twitter is violating the agreement by allegedly refusing to hand over the data he wants on spam and fake accounts. Twitter is providingwith data that includes more than 500 million tweets posted each day, according to The Washington Post, citing a person familiar with the company’s thinking.
Daniel Ives, an analyst with Wedbush Securities, said in a note Thursday that the firm believes there’s a 60% chance the deal will happen with a renegotiated price in the range of $42 to $45 per share. There’s a 35% chance, Ives wrote, that Musk will still walk away from the deal, pay the breakup fee and likely battle it out in court with Twitter’s board.
“The Twitter soap opera is clearly coming to some sort of finale over the coming months as Musk makes the decision to stay (with a lower price) or go,” Ives wrote.
The takeover attempt will likely lead to more leadership changes within Twitter. Musk is expected to serve as temporary CEO after the deal closes, CNBC reported. Parag Agrawal, who took over from co-founder Jack Dorsey in November, is expected to stay until the sale is completed. Musk also said he’d rein in executive and board pay, in addition to figuring out new ways to make money, according to Reuters, which cited anonymous sources. In May,said the CEO asked them to leave their jobs.