How Twitter is trying to force Elon Musk to pay a heavy price for takeover

New gamble in the Twitter vs Elon Musk saga. According to the Washington Post, the board of directors of the social network has yielded to the demands of the American multi-billionaire, who threatened earlier this week in a letter to the American stock market policeman (the SEC) to break the contract if Twitter does not provide him with no internal data allowing it to estimate by itself the number of fake accounts. However, these data are obviously ultra-confidential and their access by Elon Musk was not integrated into the agreement signed at the end of April between the two parties. Twitter therefore initially felt that it “was already collaborating under the terms of the agreement” with its turbulent future owner.

But the board of directors, which continues to reaffirm its desire to see the sale succeed at the price set by the agreement, i.e. 44 billion dollars (41.5 billion euros), finally decided to give in to his request. . Twitter will thus provide Elon Musk “a stream of data” colossal comprising “lare some 500 million tweets posted every day“. In other words, Elon Musk will have access to everything that is written on Twitter.

Takeover of Twitter: the stock market authorities are calling Elon Musk to account

The very clever move of Twitter

By giving Elon Musk access to all of the social network’s daily interactions, Twitter is making a major effort at transparency in an effort to put an end to the weeks-long dispute between him and the billionaire over the number of fake accounts. At first glance, this is a capitulation: Elon Musk will get, maybe “from the end of the week“According to the Washington Post, unprecedented access to extremely confidential data, which seemed unthinkable until then. Elon Musk also seemed to be counting on this refusal to put pressure on the company.

Except that Twitter, to everyone’s surprise, gave in. It’s clever: how could Elon Musk now complain about a lack of transparency when the platform provides him with such a mountain of data on a set? With this decision, Twitter actually wants to force Elon Musk to honor his promise to purchase, at the price set at the end of April, by breaking the angle of attack from the boss of Tesla and SpaceX. All under the eyes of the regulator, arbiter of the conflict:

Everyone must satisfy the SEC that they are meeting their legal obligations. By citing Twitter’s lack of transparency on the sensitive subject of fake accounts, Musk wanted to have a legitimate reason to withdraw or renegotiate the price. This put pressure on Twitter, which found itself in the position of having to demonstrate its transparency to the SEC, because if it fails then it is Musk who is right not to invest.“, deciphers analyst Etienne Drouard, specialist in mergers / acquisitions of the firm Hogan Lovells.

Twitter’s undeniable act of transparency is therefore a very nice blow vis-à-vis the SEC. Killing two birds with one stone, the social network also shows that it has confidence in its estimates of the number of fake accounts. For years, the company has claimed that these represent “less than 5%” of users. On the contrary, Elon Musk believes that the true figure is “at least 20%”. He even recently accused Twitter of lying to regulators. However, Elon Musk has no proof of what he is saying. The billionaire relies solely on his own user experience, and, recently, on a “study” he conducted himself on the basis of 100 accounts chosen by him. A ridiculous and biased sample that does not constitute a serious approach at all.

On the other hand, Twitter is a listed company, subject to regulators around the world who do not fail to question it regularly on this subject. The social network therefore has a duty to provide exact figures under penalty of criminal sanctions. By releasing his confidential data to Elon Musk, Twitter also shows that he is not afraid of having his statements verified, which gives credibility to his position with the SEC and could play in his favor in the event that Musk wants everything even cancel the deal. In this case, Twitter would have arguments to obtain in court a very large financial compensation, well beyond the billion dollars provided for in the contract.

Takeover of Twitter: the underside of the agreement with Elon Musk

The moment of truth for Elon Musk

Twitter therefore hopes to corner Elon Musk. It will certainly need time to analyze the data and deduce the number of fake accounts, but in the meantime, it should no longer be able to invoke the lack of transparency of the platform. Its threat to cancel the takeover for this reason therefore becomes more difficult to justify. A Twitter attorney also told employees Wednesday that the deal is still ongoing, and that a shareholder vote to approve the acquisition would take place in late July or early August, according to the Bloomberg news agency.

The ball is now in Elon Musk’s court. Deprived of his sledgehammer argument which served him as a pretext to renegotiate or even cancel the sale, will he give in or find a new rabbit to pull out of his hat to continue the showdown?

Because the takeover agreement obliges the entrepreneur to carry out the transaction, unless he manages to prove that the social network has deceived him or that a major event – the fall of the world stock exchanges does not enter in this case – does not change its value.

Twitter’s decision should therefore force it to clarify its intentions. Does he want, yes or no, to buy the social network? Analysts are increasingly wondering as his attitude is unprecedented in the history of mergers/acquisitions. “We have never seen such a conflictual operation between a buyer and his target. Normally we do not try to renegotiate the agreement after it has been signed because the due diligence – the verification process – is done upstream. And it’s all the more incredible that Musk also allows himself a public smear campaign, even if it means weakening Twitter in the medium term.“, is surprised Jean-Christophe Liaubet, analyst at Fabernovel.

Political agenda

For Asma Mhalla, professor at Sciences Po, expert associated with the European Research Executive Agency and specialist in the relationship between States and big tech, Elon Musk’s choice to focus his attacks on estimating the number of fake accounts does not is not insignificant. “MEven if Twitter unquestionably has a better methodology than Musk, the CEO of the social network explained himself that it is impossible to estimate in a pure and perfect way the number of fake accounts, for a multitude of reasons including the fact that some real accounts can be confused with fakes, and vice versa. So legally and scientifically, Twitter cannot present an infallible method of estimating fake accounts.“, she explains.

This is the mouse hole into which the billionaire rushes:

“Musk is focusing his attacks only on this point because he knows there is a blur. So he can continue to question Twitter’s estimate and leave for years of legal disputes. In the meantime, he will have done his job. politics: exposing the flaws in content moderation. So he’s advancing his anti-regulation agenda, which we call libertarian but I think is more anarchist. As shown by his public attacks and his poop emoji aimed at to the CEO of Twitter, Musk enjoys taunting not only Twitter but institutions in general, including the SEC.”

In other words: if Elon Musk has no or no longer any intention of buying Twitter, the transparency of the board of directors may not be enough to make him back down. Especially since he could take advantage of the flaws in the measurement of the number of fake accounts, admitted by Twitter itself, to interpret in a way that suits him the data he will receive…

Elon Musk’s flawed business model for Twitter

Asma Mhalla also points to another subject: according to her, Elon Musk has no real interest in buying Twitter if it is right about the number of fake accounts. “If Musk comes to the conclusion that there really are 5% fake accounts at most, it’s not good news for him because his business model for Twitter is based on the fact that there are 20% fakes. accounts“.

Indeed, Elon Musk advocates a mixed model: part of the revenue coming from advertising – which would increase in value once the fake accounts have been purged -, and part would come from subscriptions to brands in particular, who would thus pay their right to access to the user community. “He explains to us that the subscription system will clean up fake accounts. But if there are only 5% of fake accounts today, then that means there isn’t much leeway to better monetize the service.“, says Asma Mhalla.

However, Elon Musk also wanted to acquire Twitter to reveal its economic potential. “If he buys Twitter, it’s to win big. He’s an outstanding entrepreneur who has created enormous value for Tesla and SpaceX, he doesn’t come for the sake“, recalls Jean-Christophe Liaubet, of Fabernovel. It remains to be understood whether Musk still wants Twitter in this tense macroeconomic context characterized by the fall in tech stocks on Wall Street, and if he still thinks that the business model he had presented in April is tenable, so the soap opera Twitter vs Elon Musk is far from over…