Shares of Twitter Inc. declined more than 9% today after Elon Musk tweeted that his proposed $44 billion acquisition of the social network is “temporarily on hold.”

“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk tweeted early this morning. In a second tweet posted shortly afterwards, the Tesla Inc. chief executive stated that he’s “still committed” to the acquisition. 

Musk purchased 9.2% of Twitter’s shares in March and, a few weeks later, submitted a $43 billion offer to buy the company. Twitter accepted the acquisition offer in late April at a higher $44 billion price. The deal values the social network at $52.40 per share.

Last month, Twitter stated that it believes false or spam accounts constituted less than 5% of its daily active users during the first quarter. The social giant produced the estimate based on an “internal review of a sample of accounts.” Twitter told investors that “the actual number of false or spam accounts could be higher than we have estimated.”

Musk’s tweet this morning suggests that the decision to put the acquisition on hold is related to concerns about Twitter’s estimate. However, financial analysts told the Wall Street Journal that the move could be an attempt by Musk to negotiate a lower acquisition price. One of the analysts suggested that he might be seeking to scrap the deal altogether.

The terms of Musk’s acquisition agreement with Twitter specify a $1 billion termination fee to be paid in the event that the deal doesn’t go through. However, scrapping the buyout could potentially cost more than $1 billion. CNBC today cited a mergers and acquisitions lawyer familiar with the matter as saying that Twitter could potentially sue Musk for “billions in damages” if the Tesla CEO cancels the deal.

Several explanations have been floated for Musk’s decision to put the acquisition on hold. 

It’s believed that, if Musk’s objective is to scrap the deal, the decision may be motivated by concerns that acquiring Twitter would hurt Tesla’s shares. Tesla’s stock has declined more than 20% over the past few weeks. 

Alternatively, if Musk is seeking to negotiate a lower acquisition price, the motivation for the move may be related to the recent selloff in tech stocks. Meta Platforms Inc. and other tech giants have experienced significant share price declines in recent weeks. It’s believed that those declines may give Musk an opportunity to seek a lower price from the Twitter board.

Further complicating the acquisition is the reported regulatory  investigation into Musk’s purchase of his 9.2% stake in Twitter. Earlier this week, the Wall Street Journal reported that the U.S. Securities and Exchange Commission is scrutinizing Musk’s disclosure of the stock purchase.

If an investor acquires 5% of a company’s shares or more, the purchase must be disclosed in a regulatory filing within 10 days. According to the Journal, Musk’s Twitter stake topped 5% on March 14, but the Tesla CEO only submitted the necessary regulatory filing on April 4. The SEC is reportedly also investigating whether the document should have contained more information about Musk’s plans for the investment.

When Twitter accepted Musk’s acquisition offer last month, the company stated that the transaction is expected to close by year’s end. Afterwards, Musk could reportedly become the social network’s temporary CEO for a few months. 

Photo: SpaceX