Twitter’s board has turned up the heat on billionaire suitor Elon Musk, unanimously backing his $US44 billion ($63 billion) bid for the social media platform despite disputes about the platform’s robot users.
Twitter recommended shareholders vote in favour of the Tesla founder’s offer for the company in regulatory filings posted on Wednesday (AEST) on the basis his offer was “fair [and] advisable”.
But Mr Musk is continuing to cast doubts over the deal, saying on Wednesday that three “unresolved matters” were stopping it from going ahead.
Analysts have said Mr Musk is erecting roadblocks to scupper the deal after his funding package, which includes a large loan against his Tesla shares, started falling apart in May.
Against that backdrop, Twitter’s approval will put pressure on the billionaire to either move ahead with the purchase, or walk away and face hefty breakaway fees.
Investors appear unconvinced the deal will go through, with Twitter stock trading far below Mr Musk’s offering price on Wednesday.
Elon Musk cites hurdles
Mr Musk says there are three hurdles preventing his bid from proceeding.
The first is a long-running dispute over the number of robot users on Twitter, with Mr Musk remaining sceptical about Twitter’s claim that just 5 per cent of its user base are bots.
Mr Musk won’t buy Twitter unless it shows 95 per cent of its users are human.
“We’re still awaiting resolution on that matter,” Mr Musk told the Qatar Economic Forum on Wednesday (Australian time).
“That is a very significant matter.”
The second hurdle, Mr Musk said, is whether the debt portion of his bid will come together.
The billionaire had agreed to pay $US33.5 billion ($48.3 billion) in cash for Twitter, with a further $US7.1 billion ($10.2 billion) in equity financing from other investors, and an undisclosed debt package backed by his Tesla shares.
The debt portion has become mired in uncertainty as a global sharemarket rout eats into Tesla’s stock value, reducing Mr Musk’s wealth and undermining his debt collateral with banks.
CNBC reported in early June that negotiations with bankers had been put on hold, while Mr Musk admitted on Wednesday there’s still “a question” over whether the debt will “come together”.
Without this money, Mr Musk would either need to find new funds or substantially lower his bid for the company, which means altering the deal.
The third issue preventing the purchase from going ahead is whether shareholders will vote for it, with a meeting of investors to approve the purchase yet to be scheduled by Twitter’s board.
Mr Musk said these issues must be resolved.
Twitter turns up the heat
For its part, Twitter’s move on Wednesday shows the company wants to move ahead and call a shareholder vote, which could resolve Mr Musk’s third hurdle.
RMIT University associate professor Angel Zhong said that by recommending the deal, Twitter has removed a roadblock and put pressure on Mr Musk to make a decision.
“Twitter’s efforts to clear hurdles makes it increasingly difficult for Musk to walk away from the deal without any penalty,” she said.
The Tesla co-founder is on the hook for more than a billion dollars in breakaway fees if he tries to scupper the deal without a suitable pretext.
And the deal is also becoming less attractive for Mr Musk because his offer of $US54.20 ($78) a share is higher than Twitter’s current market price of $US38.90 ($56).
Dr Zhong suggested this gives Twitter leverage to pressure Mr Musk into either paying a 13 per cent premium for the social media giant or paying sizeable penalties for walking away.
“If the number of fake accounts checks out, Musk has no other resort but to close the deal at an expensive price,” she said.
“The consensus is that he is using this as an excuse to buy time.”
Twitter’s current share price also reflects investor scepticism that the deal will actually happen, with market watchers tipping a protracted legal battle over the terms of the merger agreement.
The billionaire also wants to rapidly expand Twitter’s user base and take steps to improve the monetisation of the platform, an issue that has long irked the social media giant’s larger investors.