Hiltzik: The Musk/Twitter circus is coming to Texas

If we choose to take our hats off to the Republican leaders of the State of Texas, it is to recognize their determination to divert the attention of their constituents from the most pressing questions.

Exhibit A: Atty. General Ken Paxton. With the funerals of the 19 children and two adults shot dead by a gunman in Uvalde, Texas still taking place and expected to continue until at least next week, Paxton has taken a tough stance – about Twitter.

On Monday, Paxton announced that he had launched an investigation to find out if Twitter lied about the percentage of fake accounts, or “bots,” on its platform.

If you think that’s a weird thing for Paxton, you’re not paying attention to the context that the percentage of bots on Twitter has become a big deal for Elon Musk in his quest to get out of the terms of his deal. $44 billion to acquire Twitter.

Musk was keen to move the headquarters of Tesla, his electric car company, to Texas from California, prompting gratitude from Texas Governor Greg Abbott.

Abbott said Musk told him he “had to leave California because, in part, of the social policies” in California and that Musk “constantly tells me that he likes the social policies of the state of Texas.” These policies include one of the most draconian anti-abortion laws and some of the most relaxed gun laws in the country.

In May, Musk also said he would vote Republican in the next election, having previously voted for the Democrats. Abbott and Paxton are both Republicans.

Paxton isn’t the only Republican to take a stand on Twitter. The GOP has long complained that the platform has disadvantaged conservatives in its account blocking practices; in April, a group of 18 House Republicans suggested they investigate company transactions with Musk if they get a majority.

Paxton justified his grandstanding on Musk’s behalf by saying Twitter’s “potentially false reporting” of fake accounts could violate Texas deceptive marketing practices law. “If Twitter misrepresents the number of fake accounts to increase their revenue, I have a duty to protect Texans,” he said.

“Twitter has come under intense scrutiny in recent weeks” for its claim that “less than 5% of all users are bots,” Paxton said.

A few points on this: first, “the scrutiny” came from exactly one person, Elon Musk, who, as we will explain, may have an ulterior motive to raise the issue; neither Musk nor anyone else has presented any evidence that Twitter misled the fake accounts.

Second, Paxton is wrong to say that Twitter claimed that less than 5% of all its users are bots; Twitter said that less than 5% of all its “monetizable“Users are bots, a category that already excludes bots that he has identified and taken action to get rid of the platform.

Third, Paxton has the nerve to bring a charge of fraud against anyone. It’s because he is himself indicted for alleged fraud, in a case that has gone unresolved in the Texas court system for seven years without a trial. He would also be under criminal investigation by the FBI in a separate case. He has pleaded not guilty in the state case and says there is nothing to the FBI’s investigation.

There’s no escaping the fact that Paxton’s foray into the Twitter affair has made Musk’s takeover bid even more of a circus than it was before. Let’s go back to the chronology.

The adventure began on April 4, when Musk revealed in a filing with the Securities and Exchange Commission that he had acquired a 9.2% stake in Twitter worth around $3 billion. He claimed in the filing that the purchases were intended as a passive investment and that he had no intention or desire to influence Twitter.

The SEC is investigating whether Musk misled investors with this filing, and why Musk violated its rules by delaying the official disclosure of his stock purchases on Twitter for more than a week after he should have. report.

The day after Musk revealed his involvement, Twitter said he had agreed to join its board and limit future stock purchases. Musk later recanted, rejected the overture, and on April 13 announced an offer of acquire all outstanding shares of Twitter at $54.20 each, well above their trading price of around $44 billion, and would then take Twitter private. Twitter’s board accepted the deal on April 25.

The agreement was binding except in very limited circumstances; Musk said he wouldn’t perform any due diligence on the company – reviewing a target’s books and records to make sure there are no hidden traps or conditions that could interfere with a successful takeover.

Since then, however, Musk has given several signals that he is experiencing buyer’s remorse. He seems to be looking for an excuse to justify his negotiation for a lower price or to drop the deal altogether.

One reason may be that Twitter’s bid contributed to a decline in Tesla shares, at least in part because Musk planned to borrow against his holdings to fund the bid, raising the possibility that he has to sell stocks to go crazy.

Shares of Tesla have fallen more than 36% since it announced its acquisitions on Twitter on April 4 and about 27% since announcing the takeover bid on April 25. At their current price of around $730, they are down more than 40% from their peak of around $1,230 on November 4th.

Musk tweeted attacks on Twitter executives and company policies; this is a potential violation of a provision of the agreement to prohibit him from disparaging the company while the takeover formalities are being worked out.

More recently, he questioned Twitter’s estimate that less than 5% of its “monetizable daily active users” were fake or spam accounts — a figure Twitter has been disclosing for years.

Musk asked for the ability to perform his own analysis based on the data he requested from the company, which the company declined. Musk first said his doubts about the stat put the deal “on hold,” even though that’s a meaningless claim under the terms of the deal.

On Monday, however, Musk really curtailed the Twitter boom. In another SEC filinghe claimed that the company’s refusal to provide the data he had requested constituted “a clear material breach” of the takeover agreement and could prompt him to “terminate the merger agreement”.

On Wednesday, Twitter appeared to call Musk’s bluff by offering him access to data from the 500 million daily tweets posted on the platform, according to the Washington Post.

All that side-play has, predictably, undermined confidence that the deal will ever materialize. That’s especially true among the bankers lined up to fund the takeover, who indicated some difficulty finding investors for the loans they’ve offered Musk.

This in turn may indicate Musk’s true intentions, as one of the conditions that allows him to walk away is the inability to secure funding. If he abandons the offer without good reason, he could face a fine of $1 billion or even a court order ordering him to complete the transaction at the agreed price.

Wall Street investors voted with their feet on Musk’s Twitter deal. Twitter’s stock price, which is expected to converge with Musk’s $54.20 bid, has never closed above $51.70, which it hit on the day of the announcement. the agreement. Since then, it has traded at $35.40, 34.6% below the offer price, an incredible spread for a deal that faces no known regulatory hurdles. As of midday Wednesday, Twitter was trading at around $40.50.

Musk’s plan to take over Twitter has dwindled to a side act, with speculation focusing not on when he will close the acquisition, but on whether he will ever do so, and how and at what price he will. will come out.

The whole affair turned into a lesson in how to undermine financial trading principles that have lubricated trading for decades. Unfortunately, it is not surprising that Elon Musk pushes the limits of good faith in this way. And, even more sadly, it’s not troubling that Texas’ top legal official, working as he is under the cloud of criminal charges, prioritizes Musk’s whims over real crises in the state. .