Elon Musk’s latest feint shows he’s clearly in charge of the $44 billion Twitter deal

The Tesla CEO’s latest ploy came Friday morning, when he tweeted that his deal to acquire Twitter for $44 billion is “temporarily on hold” pending more information about the prevalence of spam bots on the social media platform.

Skeptics pounced on the proclamation as pure poppycock—and for understandable reasons. 

The idea that spam bots, something Musk has promised to eliminate once in charge, could derail such a gargantuan deal rings hollow. The implicit suggestion that Twitter has understated the number of spam bots on its service, thereby inflating the company’s value, also conflicts with Musk’s unconvincing claims that he doesn’t care about the economics of ownership.

Rather, the flimsy excuse looks like Musk trying to worm his way out of the deal or open a window for negotiating down the price. Before today’s opening bell, Tesla’s share price was down 27% since Musk agreed in late April to buy Twitter, an overhang that hurts his wealth and complicates his plans to partially finance the acquisition through his Tesla stock. The value of Twitter also has declined in the past month, as Wall Street sheds tech stocks.

I won’t begin to guess whether Musk is engaging in legitimate fact-finding or slimy subterfuge. He’s brilliant, unpredictable, and erratic—a terrible formula for prognosticators. At the very least, this tweet is uncouth by business standards. (Following his initial tweet Friday, Musk added that he’s “still committed to acquisition.”)

The exercise does, however, illustrate just how much Musk and his massive wealth have put Twitter over a barrel. 

The purchase agreement includes a $1 billion termination fee for both sides, an amount that Twitter surely rues at the moment. It’s practically a rounding error on Musk’s estimated net worth of $234 billion, per Forbes. (The cost of backing out could surpass $1 billion under the complicated terms of the deal, but that’s what Musk pays lawyers for.)

Any termination fee could also prove less costly to Musk than following through with the deal. By backing out, Musk could boost Tesla’s stock (it’s up 6% in mid-day trading Friday) and avoid incurring hundreds of millions of dollars in interest payments tied to financing the acquisition. He also takes himself off the hook for any long-term losses tied to his ownership of Twitter. 

On the flip side, Twitter’s board desperately wants to see this deal go through. 

Its market cap, currently at $31.7 billion, would be decimated by a falling out with Musk.  While Twitter has been relatively immune to the bear market—the result of Musk’s agreement to pay $54.20 per share—Wall Street would pummel the stock as soon as Musk bailed. Musk’s tweet alone caused Twitter shares to fall 9% in mid-day trading Friday, dropping to about $41 per share. (Musk, who took a 9.2% stake in Twitter before offering to buy the company, could see personal losses from a sharp decline.)

Twitter’s board could solicit other proposals to take the company private, but available media reports suggest no serious competing offers emerged in between Musk launching his bid and Twitter accepting it. If Musk backs out, any offers made in the near-future surely would pale in comparison to his agreed-upon price.

In theory, Musk could use this imbalance to force Twitter into accepting a lower buyout offer (perhaps $42.0 per share, CNBC’s Steve Kovach joked Friday). Analysts weren’t sure Friday morning whether Musk is eyeing a cheaper price for Twitter, but they didn’t dismiss the possibility. If the price is still right, Twitter’s board could owe it to shareholders to bite the bullet on a lesser valuation.

Friday’s developments could mark the beginning of the end of the Musk-Twitter marriage, or they could merely serve as another sideshow en route to a closed deal. Whatever happens along the way, the man with the bottomless bank account is running this show.

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Jacob Carpenter

NEWSWORTHY

Taking a hard fall. SoftBank pledged Thursday to cut back on its investments in startups after the tech conglomerate reported a $13.2 billion loss in its last fiscal year, which ended in March, The Wall Street Journal reported. The Japanese organization, one of the world’s most aggressive investors in promising but unprofitable tech companies, took losses totaling $26.2 billion in the first three months of 2022 as the market sagged under inflationary and global economic pressures. SoftBank CEO Masayoshi Son reassured investors that the firm had manageable debt levels and cash reserves to navigate the current bear market, which has crushed tech startups. 

A much-needed break. Cryptocurrency values rebounded late Thursday and early Friday, as Bitcoin and Ethereum prices rose and the stablecoin Tether returned to its $1 peg following several days of large selloffs. Bitcoin and Ethereum, the world’s two most-owned coins, rose about 4% and 6%, respectively, over a 24-hour stretch, while Tether recovered after falling to 95 cents early Thursday morning. The two tokens that triggered the crypto panic haven’t recovered, however. Stablecoin TerraUSD traded Friday afternoon at 16 cents, far off its theoretical $1 peg, and related token Luna remained worthless after trading at $80 last week.

Gotta chip in more. Samsung may start charging clients up to 20% more for manufacturing semiconductors, a move that would put the South Korean giant more in line with industry players that have raised prices in recent months, Bloomberg reported Friday. Sources familiar with the matter told Bloomberg that Samsung chip prices could jump 15% to 20% in the second half of 2022, with the extra costs likely filtering down to consumers. Semiconductor designers and manufacturers have posted record revenues in recent quarters, as demand for chips surges and production supply costs jump because of materials and labor shortages.

A new hero? Robinhood shares spiked 24% in mid-day trading Friday after Sam Bankman-Fried, CEO of the cryptocurrency exchange FTX, disclosed that he had acquired a 7.6% stake in the mobile trading company. Bankman-Fried became the third-largest owner of Robinhood shares with the investment, worth about $648 million at the time of purchase. Shares of Robinhood, which soared amid the pandemic before crashing in recent months, were still down 88% from their 52-week high.

FOOD FOR THOUGHT

No longer neutral? The chip company Arm is known as the “Switzerland of semiconductors,” a quiet outfit that licenses its design technology to tech conglomerates around the world. It’s never had grand ambitions to dominate the industry, even as 29 billion chips using its technology fill countless electronics, including the iPhone. Those days, however, are quickly coming to a close. As Fortune’s Jeremy Kahn writes, Arm’s imminent IPO will put added pressure on the British firm to turn bigger, faster profits in a competitive, fast-moving chip market. Khan’s deep dive includes conversations with new Arm CEO Rene Haas and Nvidia CEO Jensen Huang, whose planned acquisition of Arm fell through earlier this year under global antitrust scrutiny.

From the article: 

The biggest problem Haas now faces is that once Arm becomes a public company—especially one asking for an expensive valuation—shareholders are likely to expect consistent revenue and profit growth. 

But analysts say it isn’t easy for Arm to ratchet up either sales or earnings. New chip designs take months and years to come to fruition. License and royalty revenues ramp up often over years. And Arm has relatively limited pricing power, since its IP is usually only a small fraction of the “value” of a circuit board, amounting to maybe $50 in a specialized chip that might cost thousands for a datacenter. 

“You can’t just twiddle the knobs to drive up revenue,” Alan Priestly, a senior analyst at technology research firm Gartner, says.

IN CASE YOU MISSED IT

The crypto crash rivals both the internet bubble burst and the Great Financial Crisis, Bank of America says, by Taylor Locke

Gloating Twitter short-seller trolls Elon Musk as takeover wobble sees all share gains wiped out, by Christiaan Hetzner

Luna founder’s wife under emergency protection after crypto market death spiral plunges coin to $0, by Christiaan Hetzner

Mark Cuban says he never owned Terra’s ‘stablecoin’ or its Luna token and ‘turned down’ Anchor. ‘You look to see if it’s a sustainable product’, by Taylor Locke

Twitter to freeze hiring, rescind offers ahead of Musk $44 billion takeover deal, by Kurt Wagner, Sarah Frier, and Bloomberg

‘This isn’t how I imagined leaving’: Twitter boss Parag Agrawal fires top executive on paternity leave as Musk takeover looms, by Chloe Taylor

Abortion misinformation surges on Facebook, Twitter, and TikTok after Supreme Court decision leak, by Davey Alba and Bloomberg

BEFORE YOU GO

Cats and flogs. Memo to PlayStation president Jim Ryan: don’t talk about abortion and your cats at the same time. The gaming executive ticked off some Sony employees Thursday with a bizarre email that invoked his pets while urging staffers to “be mindful of having balance” during a time of political turbulence. After asking employees to “respect differences of opinion” on current events, including the U.S. Supreme Court’s potential overturning of Roe v. Wade, Ryan launched into a multi-paragraph soliloquy “about his cats’ birthday cakes, their noises and his desire to one day get a dog,” Bloomberg reported. The outlet cited one employee saying they had “never been so mad about a cat birthday before.” 

Editor's note: Thursday's edition of Data Sheet listed the wrong time frame for Disney reporting $887 million in quarterly direct-to-consumer unit losses. It was the first three months of 2022.