Elon Musk threatens to pull out of Twitter deal

DETROIT — Elon Musk is threatening to pull out of his $44 billion bid to buy Twitter, accusing the company of refusing to give him information about its spam bot and fake accounts.

Lawyers for the Tesla and SpaceX CEOs voiced the threat in a letter to Twitter Monday, which the company disclosed in a filing with the US Securities and Exchange Commission.

The attorneys wrote that since May 9, about a month after his bid to buy the company, Musk had repeatedly asked for the information so he could evaluate how many of the company’s 229 million accounts were fake.

Twitter CEO Parag Agrawal said that Twitter consistently estimates that less than 5% of its accounts are spam. But Musk has denied that, claiming in a May tweet, without providing any evidence, that 20% or more is fake.

Twitter Inc. shares fell 1.5% on Monday, likely angering Twitter shareholders, who filed a lawsuit against Musk for deflating the stock price late last month. Twitter’s shares have fallen more than 20% over the past month.

Twitter said in a statement Monday that it had cooperatively shared information with Musk “in accordance with the terms of the merger agreement,” noting that the deal was “in the best interests of all shareholders.”

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

Back in April, Musk agreed to buy Twitter for $54.20 a share. A series of actions by Musk since then, including a public row with Twitter’s CEO over the fake accounts — on Twitter — has led some pundits to wonder whether the billionaire plans to use his vocal complaints to negotiate a lower deal price or not even go away altogether.

Musk’s lawyers wrote in the letter that Twitter only offered to reveal details about the company’s testing methods. But they claim that’s “tantamount to refusing Mr. Musk’s requests for data” and constitutes a “material violation” of the merger agreement, which gives Musk the right to end the deal if he so chooses.

“This is a clear material breach of Twitter’s obligations under the Merger Agreement, and Mr. Musk reserves all rights arising therefrom, including his right not to consummate the Transaction and his right to terminate the Merger Agreement,” it said the writing.

Musk wants the underlying data to conduct his own review of what he sees as Twitter’s lax methods.

The Twitter logo is seen in front of its headquarters in downtown San Francisco, California on April 26, 2022.

AMY OSBORNE/AFP via Getty Images

The Twitter sale agreement allows Musk to go out of business if there is a “material disruption” from the company. It defines this as a change that adversely affects Twitter’s business or financial condition. Twitter has been saying all along that it’s going ahead with the deal, though it hasn’t scheduled a shareholder vote on it.

Last month, Musk said he unilaterally put the deal on hold, which experts say isn’t possible. If he walks away, he could be on the hook for a $1 billion breakup fee.

Musk’s latest maneuver shows him “looking for a way out of the deal or something that will get leverage to renegotiate the price,” said Brian Quinn, a law professor at Boston College. But Quinn said it was unlikely to stand up in court as he had already waived his ability to request more due diligence.

“I doubt he’ll be allowed to go,” Quinn said. “Eventually, Twitter’s board of directors will tire of this and file a lawsuit,” asking a judge to force Musk to go through with the deal.

Twitter has disclosed its bot estimates to the SEC for years, while warning that its estimate may be underestimated.

Continue reading: A complete timeline of Elon Musk’s business ventures

“If Twitter is confident in its published spam estimates, Mr. Musk does not understand the company’s reluctance to allow Mr. Musk to independently evaluate those estimates,” Musk said in the letter, adding that he agrees not to disclose or keep the data.

The bot problem is a long-standing fix for Musk, who has more than 96 million Twitter followers and whose name and likeness are often mimicked by fake accounts promoting cryptocurrency scams. Musk seems to think such 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 want to reach.

Musk’s lawyers argue that he is entitled to data about the core of Twitter’s business model in preparation for the transition to his ownership. Citing a letter from Twitter dated June 1, in which the company said it only needs information related to completing the sale, Musk’s team says the company is required to provide data for any reasonable business purpose that required to complete the transaction.

Musk’s skepticism about the bot count was also echoed by the Chief Legal Officer of Texas, where Tesla is headquartered, on Monday. Attorney General Ken Paxton, a Republican, said he’s opening an investigation because he has “a duty to protect Texans when Twitter misrepresents how many accounts are fake to boost their revenue.”

Matt O’Brien reported from Providence, Rhode Island

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