Elon Musk warned Twitter Inc on Monday that it could walk away from its $44 billion deal to acquire the social media company if it fails to provide data on spam and fake accounts.
This wasn’t the first time Musk has publicly suggested that his Twitter acquisition might not happen. But the warning in a letter written by Musk’s lawyers to Twitter’s chief legal officer, Vijaya Gadde, marked an escalation. It accused Twitter of being in “material breach” of its deal obligations.
Musk’s threats to tear down the deal have coincided with a drop in several technology stocks – including the electric car maker, Tesla Inc – amid concerns over higher interest rates due to an economic slowdown and rising inflation.
Shares of Twitter ended Monday down 1.5% at $39.57, a huge discount to the agreed $54.20 per share deal price, as investors bet that Musk would either convince Twitter to agree to a lower deal price or Will go away
In a letter to Twitter, Musk’s lawyers reiterated their request for details on the bot accounts and said they reserved all rights to terminate the acquisition because the company was in “clear material breach” of its obligations by not providing information to them. .
Twitter responded that it planned to enforce the completion of the deal on agreed terms. “Twitter has and will continue to share information with Musk in order to complete the transaction in accordance with the terms of the merger agreement,” the company said in a statement.
A self-proclaimed free speech absolutist, Musk has said that one of his priorities will be to remove “spam bots” from the platform.
He tweeted that the Twitter deal was “temporarily on hold” in mid-May, adding that he would not proceed with the offer until the company showed evidence that spam bots accounted for less than 5% of its total users. eat. He has said that he believes spam bots account for at least 20% of the user base.
Independent researchers have estimated that 9% to 15% of millions of Twitter profiles may be bots.
In his letter, Musk said he needed the data to conduct his own analysis of Twitter users because he did not trust the company’s “loose testing method”. Twitter has said it sticks to its estimates and cannot provide proprietary information about how it produces them.
“He’s trying to walk away from the Twitter deal, this is the first shot across the bow,” said Wedbush analyst Dan Ives.
Legal experts have told Reuters that the disclaimers Twitter used in its estimates on spam accounts offer some protection against potential lawsuits, whether over the deal from Musk or from shareholders over the accuracy of the company’s regulatory statements.
Even if Twitter’s guess is off, Musk would have to show that the San Francisco-based company was deliberately trying to mislead — a high legal limit.
Dennis Dick, a proprietary trader at Bright Trading LLC, said, “It’s quite clear that Musk has buyer’s remorse and is doing everything he can to bring down the price, and I think he may be successful.” “
get a low price
To be sure, Musk may be able to walk away or renegotiate the deal, even if the law is in Twitter’s favor. That’s because any lawsuit is likely to be prolonged, and Twitter could decide whether to agree to a lower price or compensation from Musk rather than try to force it to complete the transaction in court. It makes more sense to receive.
When the COVID-19 pandemic broke out in 2020 and caused a global economic shock, many companies renegotiated or walked away from agreed acquisitions.
In one instance, French retailer LVMH threatened to walk away from a deal with Tiffany & Co. The American jewelry retailer agreed to reduce the acquisition price from $425 million to $15.8 billion.
As part of the deal, Musk is contractually obligated to pay a $1 billion breakup fee — a portion of his fortune estimated by Forbes at $219 billion — if he cannot complete the transaction because of debt financing. falls apart or the regulators block it.
US antitrust regulators last week decided not to investigate further into Musk’s acquisition of Twitter, making it unlikely that it would stumble on regulatory grounds. The EU is still reviewing the deal.
In Texas, Attorney General Ken Paxton announced Monday that he had opened an investigation into Twitter over what he said was “potentially false reporting on his fake bot accounts,” a potential violation of state law.
Paxton asked Twitter to turn over the documents as part of the investigation.
“If Twitter is misrepresenting how many accounts are bogus in order to increase their revenue, then my duty is to protect Texans,” Paxton said in a statement.
A Twitter spokesperson said the company stands by its filings with the US Securities and Exchange Commission.
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