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Twitter Cancelled

Elon Musk’s extremely public acquisition of Twitter has officially been scuttled. Last week, the increasingly controversial billionaire stated that he was going to be terminating his 44 billion USD acquisition of the social media company. His publicly stated reason for stopping the deal has been an issue with bots. Everybody has known for years that there are many bots operating on the site, but Musk has taken issue with the sheer volume of bots. Because of Musk’s erratic behaviour, some people have accused Musk of looking for any excuse to get out of a bad deal (they say his offer was far too high). But Musk’s complaint is quite valid: a social media company’s value is based almost entirely on the number of people who use the platform, and do so actively. If Twitter’s numbers are artificially inflated by bots, both in terms of raw users but also in terms of true engagement, then the social media company’s value should suffer.

What are bots?

“Bots” or “spam bots” are essentially computer programs that behave like people. They imitate how real people use Twitter. Many of these accounts are automated, but like many of the Russian accounts that influenced the 2016 election, countless others are operated by real people. They follow people, they tweet at people, and they share tweets by other people. Sometimes they are used to harass people online. Sometimes they are extremely helpful and answer questions instantly. And a lot of them are just scams to separate gullible people and their money. Given the sophisticated nature of the operations, they are also very hard to detect. And considering how the people who can wield them successfully also wield considerable power, they have vested interests in remaining undetected. That said, according to Twitter, they are constantly improving their defences. But no matter their excuse, Musk claims that Twitter has been unable to provide real numbers about the number of bots on their platform. The company has publicly estimated that the number is roughly 5%, but many believe the true number may be significantly higher. Because of Twitter’s inaccurate statements about the number of bots on the platform, Musk has said they have materially breached the agreement they made, allowing him to walk away from the deal. Twitter does not agree.

The long and short of it

There is very likely to be a very long and ugly legal battle between the two parties. In April, Musk signed a binding deal to buy Twitter at 54.20 USD per share (its stock has dropped 20% since then). In that deal, there is even a clause for a 1 billion USD “breakup fee” that Twitter gets to keep if Musk walks away. Most importantly, there is a clause allowing Twitter to sue Musk to force him to finish the deal as long as his financing remains intact. Twitter has just about every incentive to complete the deal. The company has been struggling to grow for several years now, and its financials have been far from stable, with slowed hiring and freshly laid-off employees.

Despite how dire things look now, Musk may simply be “walking away” to get Twitter to lower its price. It is a tactic that has been used many times over, most recently with LVMH’s acquisition of Tiffany & Company. Companies enter legal battles in order to force price re-negotiations, and given how much tech stock prices have plummeted recently, that may be exactly what Musk is after.