Elon Musk threatens to walk away from his deal on Twitter

Lawyers for the CEO of Tesla and SpaceX made the threat in a letter to Twitter dated Monday, and Twitter disclosed it in a filing with the United States Securities and Exchange Commission.

The letter says Musk has repeatedly requested this information since May 9, about a month after he offered to buy the company, so he could assess how many of the company’s 229 million accounts are fake.

If Musk walks away, he could face a colossal severance fee. (AP)

Twitter CEO Parag Agrawal said Twitter has always estimated that less than 5% of its accounts are fake. But Musk disputed that, saying in a May tweet that 20% or more is wrong.

Shares of Twitter Inc. fell just under 3% on Monday, likely infuriating Twitter shareholders who filed a lawsuit against Musk late last month for deflating the stock price. Twitter shares are down 23% in the past month.

Twitter said in a statement Monday that it “has and will continue to cooperatively share information with Mr. Musk to complete the transaction pursuant to the terms of the merger agreement.”

“We intend to complete the transaction and implement the merger agreement at the agreed price and terms,” ​​he added.

Musk agreed to buy Twitter for $54.20 per share in April.

A number of Musk’s actions since, including a public spat with the Twitter CEO over the fake accounts – on Twitter – have some pundits wondering if the billionaire wants to go through with the deal, or at least lower his offer.

FILE - This April 26, 2017 photo is of a Twitter app icon on a cellphone in Philadelphia.  Twitter will pay a $150 million fine and introduce new safeguards to settle claims by federal regulators that the social platform failed to protect the privacy of user data over a six-year period.  The Department of Justice and the Federal Trade Commission announced the settlement Wednesday, May 25, 2022 with Twitter.  (AP Photo/Matt Rourke, File)
Tesla CEO Elon Musk has promised that taking over Twitter will allow him to rid the social media platform of its annoying “spam bots”. (AP Photo/Matt Rourke, File) (AP)

Musk’s attorneys say in the letter that Twitter only offered to provide details about the company’s testing methods. But they argue that this “amounts to denying Mr. Musk’s data requests” and constitutes a “material breach” of the merger agreement which gives Musk the right to rescind the deal if he chooses.

“This is a clear breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all rights arising therefrom, including his right not to complete the transaction and his right to terminate the transaction. ‘merger agreement,’ the letter reads.

Musk wants the underlying data to do its own verification of what he says are Twitter’s lax methodologies.

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The Twitter sale agreement allows Musk to opt out of the deal if there is a “material adverse effect” caused by the company. He defines this as a change that negatively affects Twitter’s business or financial terms. Twitter has always said it is proceeding with the deal, although it did not expect a shareholder vote on it.

Last month, Musk said he had unilaterally suspended the deal, which experts said he could not do. If he leaves, he could be liable for a $1 billion ($1.39 billion) severance package.

Musk’s latest move shows how he’s “looking for a way out of the deal or something that will have leverage for a price renegotiation,” said Boston College law professor Brian Quinn. But Quinn said he was unlikely to resist in court since he had already waived his ability to seek further due diligence.

“I doubt he’s allowed to walk away,” Quinn said. “At some point, Twitter’s board will get tired of this and file a lawsuit” asking a judge to force Musk to stick to the deal.

Twitter has disclosed its bot estimates to the US Securities and Exchange Commission for years, while warning that its estimate may be too low.

“While Twitter is confident in its published spam estimates, Mr. Musk does not understand the company’s reluctance to allow Mr. Musk to independently assess these estimates,” Musk’s letter said, adding that he undertakes not to disclose or store the data.

The bot problem is a longtime fixation for Musk, one of Twitter’s most active celebrities, whose name and likeness is often impersonated by fake accounts promoting cryptocurrency scams. Musk seems to think these bots are also a problem for most other Twitter users, as well as advertisers who serve ads on the platform based on how many real people they expect to reach.

The letter signed by Musk’s attorney Mike Ringler, who has copied other attorneys, indicates a spat over a June 1 letter from Twitter in which the company said it had only to give information relating to the closing of the sale.

Elon Musk has ordered an end to working from home at Tesla.
Elon Musk worries about the number of bots that have Twitter accounts. (AP)

It states that Twitter is obligated to provide data for any reasonable business purpose necessary to complete the transaction.

Twitter must also cooperate with Musk’s efforts to obtain funding for the deal, including providing information “reasonably requested” by Musk, the letter said.

The letter claims that Musk is not required to explain why he is requesting the data or submit to “new conditions the company has attempted to impose” on his right to obtain the numbers.

He alleges that Musk is entitled to data about Twitter’s core business model so he can prepare for the transition to his ownership.

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