Elon Musk said on Friday his $44 billion deal to take Twitter (NYSE:TWTR) private is “temporarily on hold”, throwing the fate of his leveraged buyout plan into doubt.
“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk said via the microblogging site. Over an hour later, he added in a new tweet: “Still committed to acquisition.”
Twitter had said in a filing earlier this month that fake and spam accounts represent less than 5% of the overall total of accounts using the network. Musk has indicated that he thinks it’s higher, and has said that getting them off the network would be one of his top priorities if his deal goes through.
The likelihood of the deal closing has, however, fallen for other reasons this week, owing to the sharp drop in the value of Tesla (NASDAQ:TSLA) shares, which Musk was due to use as collateral for a $12 billion margin loan from Morgan Stanley (NYSE:MS) to finance the deal. Bloomberg reported on Thursday that Musk was looking at raising $6 billion in preferred equity from the company instead, reducing the amount he would have to borrow to get the deal over the line.
Elon Musk says twitter deal is temporarily on hold
The merger agreement would force Musk to pay a break fee of $1 billion if the deal falls through due to – among other things – a failure to complete its financing. It’s not clear whether the reason given by Musk on Friday would allow him to get around that clause.
Twitter stock fell 23% in premarket trading in response to the news, as market participants assigned a higher probability to the deal falling through. By 6:05 AM ET (1005 GMT), it was indicated at $35.24 a share, around 10% below where it was trading before Musk announced his offer of $54.20 a share. Tesla stock, by contrast, rose 4.8% as the risk of a significant equity overhang faded.
Musk’s bid for Twitter had allowed the social media stock to defy the sharp sell-off in the Nasdaq Composite over the last month. That out performance threatens to reverse sharply if the deal unravels, not least due to the underlying weakness of Twitter’s business. The company’s latest quarterly results showed revenue grew at its slowest in six quarters, while it also had to admit to overstating its active users for most of the last three years, if only by around 1%.
Musk himself has said he would sell his existing 9.2% stake in the company if the bid is not accepted.
The accumulation of that stake is reportedly under investigation by the Securities and Exchanges Commission after Musk missed a deadline to declare his interest as he bought.