LOS ANGELES: Elon Musk warned Twitter that he might walk away from his $44 billion deal to acquire the social media company if it fails to provide data on spam and fake accounts.
This was not the first time Musk had suggested publicly his acquisition of Twitter may not happen. The warning, delivered in a letter from 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 up the deal have coincided with a plunge in many technology stocks including the electric car maker Tesla amid concerns over an economic slowdown and higher interest rates in the face of raging inflation.
Twitter shares ended down 1.5% at $39.57 on Monday, a large discount to the agreed $52.20 deal price, as investors bet Musk will either convince Twitter to agree to a lower deal price or walk away.
In the letter to Twitter, Musk’s lawyers reiterated his request for details on bot accounts and said he reserved all rights to terminate the acquisition as the company was in a “clear material breach” of its obligations by not providing him with the information.
Twitter responded that it planned to enforce the completion of the deal on the agreed terms. “Twitter has and will continue to cooperatively share information with Musk to consummate 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 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, saying he will not move forward with the offer until the company showed proof that spam bots account for less than 5% of its total users.
He has said he believes spam bots constitute at least 20% of the user base. Independent researchers have projected that 9% to 15% of the millions of Twitter profiles may be bots.
In his letter, Musk said he needs the data to conduct his own analysis of Twitter users because he did not believe in the company’s “lax testing methodologies.” Twitter has said it stands by its projections and it cannot provide proprietary information on how it produces them.
Even if Twitter’s estimate is off, Musk would have to show that the San Francisco-based company was seeking to willfully mislead – a high legal threshold.
Musk may be able to walk away or renegotiate the deal even if the law is on Twitter’s side. This is because any litigation is likely to be protracted, and Twitter may decide it makes more sense to agree to a lower price or receive compensation from Musk rather than try to force him to complete the transaction in court.
As part of the deal, Musk is contractually obligated to pay a $1 billion breakup fee – a sliver of his fortune pegged by Forbes at $219 billion – if he cannot complete the transaction because the debt financing falls apart or regulators block it.
UA antitrust regulators last week decided not to further scrutinize Musk’s acquisition of Twitter, making it unlikely that it would stumble on regulatory grounds. The European Union is still reviewing the deal.
