Did this overnight Elon Musk tweet change the status of his bid to buy Twitter from yesterday’s “on hold” message? That’s unclear, but it certainly grabbed lots of attention. In a reply to a suggestion that Musk wants to play hardball for negotiating a lower price, Musk seemed to suggest that he’s not going to go forward at any price until Twitter properly quantifies its spam content:

20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher.

My offer was based on Twitter’s SEC filings being accurate.

Yesterday, Twitter’s CEO publicly refused to show proof of <5%.

This deal cannot move forward until he does.

— Elon Musk (@elonmusk) May 17, 2022

The Wall Street Journal certainly considers this a noteworthy change in direction:

Elon Musk said his $44 billion purchase of Twitter Inc. can’t move forward until the company is clearer about how many of its accounts are fake, casting fresh doubt on his planned takeover of the social-media company.

Mr. Musk’s latest comments add to questions about whether he is committed to concluding a deal that was struck amid a steep selloff in technology stocks. Last week, he said the deal was “on hold” over concerns about fake accounts on the platform—a problem that has long dogged social media companies. …

Mr. Musk’s tweet was in response to an article covering his own estimate, made at a conference a day earlier, in which he estimated that fake users make up at least 20% of all Twitter accounts. Mr. Musk’s figure roughly matches one in a new report from a market-research firm, SparkToro. The firm says it includes in its figures automated accounts that could be considered legitimate, such as ones that post a feed of news headlines.

In securities filings, Twitter has long estimated that false or spam accounts represent less than 5% of its total number of active users, but has also said that the actual number “could be higher than we have estimated.”

The SparkToro estimate has a key caveat, although it may play either way in this dispute:

SparkToro says its analysis of a representative sample of active Twitter accounts found that 19% fit what it calls a conservative definition of fake or spam accounts.

But SparkToro specifies that its definition of fake accounts includes all accounts that don’t regularly have a human composing their tweets, which are common on Twitter for sending such information as news updates, inspirational quotes and stock-price changes. Twitter offers tools for developers to build automated bots.

True, and those bots can be very useful to users. I have a list built of breaking news accounts and some selected reporters, and much of the former are auto-tweet accounts from media outlets. Those shouldn’t be counted as “spam,” since they serve a specific and beneficial function of informing Twitter users on news stories rather than selling products or maliciously spreading propaganda.

However, to Musk’s point, they’re not human users either. Advertisers want to know how many actual eyeballs will view their content, not bots, regardless of whether they’re beneficial or malignant. Musk has a valid point when it comes to getting an accurate picture of the value of Twitter by defining its user base in the context of advertisers. The beneficial bots may indirectly impact the human-user count by making the platform more attractive to users, but their inclusion as non-spam muddies the actual direct value of Twitter for anyone who wants to leverage advertising to make the platform profitable.

Meanwhile, CNBC has a tick-tock on Musk’s acquisition of Twitter that certainly makes him look more deliberate than some surmise, based on an SEC filing today from Twitter. What looked like a mercurial flip from joining the board to a buyout actually came after conversations with Jack Dorsey that convinced Musk that Twitter needed to go private to adapt:

Tuesday’s filing reveals a timeline of conversations from Twitter’s perspective in the lead-up to the deal, beginning on March 26, when Musk reached out to former CEO Jack Dorsey “to discuss the future direction of social media.” That same day, Musk also reached out to Twitter board member Egon Duban and the two discussed the possibility of Musk joining the board.

The following day, Musk spoke with Twitter board chair Bret Taylor and CEO Parag Agrawal about his interest in Twitter, saying he was considering joining the board, trying to take Twitter private or starting a competitor.

After meetings between board members with Musk that included lawyers and bankers, they reached an agreement on Musk joining the board in early April, contingent on a background check and other customary procedures.

On April 4, Musk reached out to Dorsey about his perspective on Twitter. Dorsey told Musk he personally believes Twitter would be better equipped to focus on execution as a private company, according to the filing. Musk asked if Dorsey would stay on the board even though he had already been set to leave, and Dorsey declined.

Soon after that conversation, the board completed Musk’s background check and his appointment to the board was set to go into effect on April 9. Leading up to that date, Musk and Agrawal continued discussing Twitter’s business and products in anticipation of his new role on the board. But before the appointment came into effect, Musk told Taylor and Agrawal he would no longer be joining the board and would instead make an offer to take Twitter private.

It’s not clear that Dorsey talked Musk into switching gears, or whether Musk was already inclined to seek full control and Dorsey just validated Musk’s instincts. Dorsey endorsed the move publicly after Musk made it, but the background here suggests that Dorsey pushed a bit for that outcome and may have cinched it when Dorsey declined to remain on the board if Musk joined present management instead.

That certainly makes Musk look less impulsive on his choice, and perhaps not so cynical on his position now. One has to wonder what Dorsey thinks of Agrawal’s definition of spam and his previous representations to the SEC on that point. Agrawal may want to get this settled before Dorsey decides to make that known publicly.

Update: I mentioned yesterday that all of this public fighting might risk an SEC action on the basis of manipulation if Musk uses it to push for a lower buyout price. I’m not the only one noting the risk, either:

For a year or so, @matt_levine (former M&A lawyer, investment banker, & brilliant writer) has had a tolerant, begrudgingly admiring, & almost bemused attitude toward @elonmusk's antics. No more. His last two notes re $TWTR deal have been brutal. Wake up, @SECGov. From today's: pic.twitter.com/geKMrJcBhs

— Montana Skeptic (@montana_skeptic) May 16, 2022

Presumably, an allegation that Agrawal and Twitter have misled Twitter stockholders might give Musk some cover for such charges. Musk isn’t disputing the existence of spam and bots, after all — he’s disputing the representation of their cumulative weight in Twitter’s user and activity base in the SEC filings on which Musk and others calculated Twitter’s potential value. But yes, this is the kind of due diligence one would expect Musk to have performed up front before making the bid, as I have also noted elsewhere.

Update: More from Matt Levine on Friday:

“‘Temporarily on hold’ is not a thing,” Bloomberg columnist Matt Levine wrote Friday. “Elon Musk has signed a binding contract requiring him to buy Twitter.” The contract “does not allow Musk to walk away if it turns out that ‘spam/fake accounts’ represent more than 5% of Twitter users,” which was revealed by the company in its quarterly filings last month, Levine added.

When buying a company “you are not supposed to say things that aren’t true and that will affect the stock of a public company that you are trying to buy,” Levine noted. “That is what is usually called ‘securities fraud,’ or what I sometimes like to call ’lite securities fraud.’ Musk has a long history of lite securities fraud.”

Musk settled a fraud lawsuit with the Securities and Exchange Commission in 2018 because he tweeted that he had secured funding to take Tesla private but hadn’t.

He’s currently being sued for securities fraud by Twitter shareholders because he missed the legally required deadline by 10 days to declare that his stake in the company had risen to 5%. By keeping that information hidden, he was able to continue to buy stock without an uptick in prices triggered by his interest, saving $143 million, according to the suit.

The SEC is now also looking into that, The Wall Street Journal reported Wednesday.

Musk is definitely playing with fire here.