Elon Musk Threatens to End Twitter Deal Without Information on Spam Accounts

In a crisp, six-paragraph letter to Twitter on Monday, attorneys for Elon Musk, the world’s richest man, made his displeasure identified.

Twitter was “actively resisting and thwarting” Mr. Musk’s rights whereas he was finishing a $44 billion deal to purchase the social media service, the attorneys wrote. The company was “refusing Mr. Musk’s data requests” to disclose the variety of pretend accounts on its platform, they mentioned. That amounted to a “clear material breach” of the deal, the attorneys continued, giving Mr. Musk the precise to break off the settlement.

The letter, which was delivered to Twitter and filed with the Securities and Exchange Commission, escalated Mr. Musk’s marketing campaign to terminate the blockbuster acquisition. After hanging a deal to purchase Twitter in April, Mr. Musk, 50, has repeatedly prompt that he might want to scrap the acquisition. Monday’s letter featured essentially the most direct phrases but about his want to pull out and crystallized his authorized argument for doing so.

It added one other diploma of uncertainty to whether or not Mr. Musk would full the deal, though he had waived his rights to do due diligence on Twitter when he purchased it. The letter additionally raised the prospect of a contentious authorized battle if one or the opposite aspect took the matter to courtroom. If Mr. Musk pursued that route, the phrases of the deal give Twitter the precise to sue him to pressure a completion of the acquisition, if his debt financing for the acquisition stays intact.

The letter additionally provoked some eye-rolling. Mr. Musk, who leads the electrical carmaker Tesla and the rocket company SpaceX, is famously mercurial and has usually winged his wheeling and dealing, making his newest gambit not completely surprising.

“This is a move Twitter investors have for weeks been steeling themselves for, the moment when Elon Musk’s haphazard ruminations in tweets have been distilled into an official letter to regulators,” wrote Susannah Streeter, a senior funding and markets analyst at Hargreaves Lansdown. “The takeover was always destined to be a bumpy ride.”

Twitter mentioned the sale to Mr. Musk remained on course. “We intend to close the transaction and enforce the merger agreement at the agreed price and terms,” a spokesman mentioned, including that the company “will continue to cooperatively share information with Mr. Musk to consummate the transaction.”

Behind the scenes, Twitter has shared data with Mr. Musk for a few month with none breakdown in communication, an individual with information of the scenario mentioned, requesting anonymity as a result of the discussions have been confidential. One of Twitter’s issues in sharing the data is Mr. Musk’s prior statements, each publicly and to Twitter, that he was contemplating beginning a rival social media service, two individuals accustomed to the matter mentioned. Typically, such issues are addressed by including guardrails, like limiting who would have entry to such data, and are negotiated earlier than hanging any deal.

Sean Edgett, Twitter’s normal counsel, additionally despatched an electronic mail to workers on Monday morning reiterating the company’s dedication to closing the deal, in accordance to a duplicate of the memo, which was obtained by The New York Times.

Twitter’s stock fell 1.5 % on Monday to shut at $39.56, far beneath the $54.20 value per share that Mr. Musk agreed to pay for the company.

Mr. Musk didn’t instantly reply to a request for remark.

Mr. Musk, who has complained about Twitter’s pretend accounts and bots for weeks, has appeared to get some traction on the problem with others. After Mr. Musk’s letter to Twitter turned public on Monday, Ken Paxton, the Texas legal professional normal, mentioned he was opening an investigation into the company “for potentially misleading Texans on the number of its ‘bot’ users,” his office mentioned in an announcement.

Twitter declined to remark on Mr. Paxton’s investigation.

When Mr. Musk agreed to purchase Twitter in April, he mentioned he needed to take the company personal, permit extra free speech on the platform and enhance the service’s options. But within the weeks since, the stock market has plunged over fears of inflation, the conflict in Ukraine and provide chain challenges.

The downturn has hit shares of corporations similar to Tesla, which is Mr. Musk’s important supply of wealth. The turmoil has additionally rattled credit score markets, doubtlessly making it more durable for banks to promote the debt that’s sometimes raised to finance a takeover. Analysts have speculated that these components have given Mr. Musk purchaser’s regret about spending $44 billion on the social media company.

In latest weeks, Mr. Musk has threatened to put the Twitter deal “on hold” over its variety of pretend accounts. Last month, he tweeted that “the deal cannot move forward” till Twitter exhibits “proof” that these accounts make up lower than 5 % of its customers, because the company has repeatedly mentioned. He additionally made related remarks at a convention in Miami, indicating that he could also be making an attempt to lay the groundwork to rework the deal.

In doing so, Mr. Musk appeared to be constructing a case to argue that Twitter had skilled a “material adverse change” that may considerably have an effect on its business, which may permit him to break off the deal. Yet authorized specialists have questioned the deserves of that argument, notably since Twitter has lengthy disclosed that pretend accounts characterize about 5 % of its customers.

Mr. Musk’s letter on Monday, although, represented a brand new technique. Rather than merely saying that the billionaire didn’t consider Twitter’s numbers, his attorneys mentioned within the letter that the company was breaching its obligations by not giving Mr. Musk the data that he deemed essential to the deal — on this case, the way it accounts for its variety of bots.

The attorneys wrote that Mr. Musk had “repeatedly” requested extra details about how Twitter measured spam and faux accounts on its platform and that he had “made it clear that he does not believe the company’s lax testing methodologies are adequate so he must conduct his own analysis.”

They mentioned Twitter’s cooperation was vital to safe the debt financing that banks have dedicated to fund the deal. Morgan Stanley and different lenders have dedicated $13 billion in debt to assist pay for Mr. Musk’s takeover. Those commitments are ruled by the identical authorized contracts because the deal.

“What he is actually doing is a much more clever attempt to get out of the merger agreement,” mentioned Ann Lipton, a professor of company governance at Tulane Law School. “If Twitter were really stonewalling information requests, and those information requests were necessary or reasonable for Musk to be able to get his financing — which is what he’s claiming in this letter — then that would conceivably be a breach that allows Musk to walk away.”

Twitter may, in flip, argue it doesn’t have the data that Mr. Musk is demanding, or that it isn’t vital for the deal to shut, she mentioned.

A deal is anticipated to shut by Oct. 24. If it doesn’t shut by then, both aspect can stroll away. If the transaction is delayed by regulatory approvals at the moment, Mr. Musk and Twitter would have one other six months to shut it. The deal features a $1 billion breakup price for either side, beneath sure situations.

In many respects, the settlement in any other case seems on monitor. Last week, Twitter introduced it had received regulatory clearance from the Federal Trade Commission to proceed with its sale.

On the financing entrance, Mr. Musk disclosed in a filing final month that he had raised his personal money dedication to the deal, canceling a deliberate mortgage towards shares of Tesla. He additionally mentioned he was in talks with different Twitter shareholders, together with the company’s co-founder Jack Dorsey, about rolling their present shares into the company after it’s taken personal.

For Twitter, finishing the deal is existential. The company has confronted difficulties delivering constant monetary outcomes and growing its numbers of customers.

Parag Agrawal, Twitter’s chief govt, final month minimize the company’s discretionary spending and froze new hiring. Since taking on in November, he has shaken up the company’s high ranks and has plans for extra adjustments. He has additionally requested workers to attempt to keep the course.

“I know we’ve been going through a period of uncertainty,” he mentioned at a latest company meeting. “We are shifting our focus back to our work.”