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

Elon Musk is threatening to pull out of his $44 billion acquisition of Twitter if the company doesn’t provide more information on how it calculates the number of fake accounts.

In a letter sent to Twitter on Monday and filed with the Securities and Exchange Commission, Musk’s attorneys at the law firm Skadden, Arps, Slate, Meagher & Flom argued that Twitter was “actively resisting and thwarting” Musk’s rights. under the terms of its agreement to acquire the social media company. His lawyers accused Twitter of a “clear material breach” of its obligations and said Musk was entitled to break the agreement as a result.

The letter said that Musk had “repeatedly” requested more information about how Twitter measures spam and fake accounts on its platform, and that he “made it clear that he does not believe the company’s lax testing methodologies are adequate, for so you should carry out your own analysis.” He said that Twitter’s cooperation was necessary to secure financing for the debt that the banks agreed to fund the deal.

Twitter’s response to previous inquiries from the Musk team, which explained the firm’s testing methodology, was “equivalent to rejecting Musk’s data requests,” the letter said.

Musk, who signed a deal to acquire Twitter in April, has in recent weeks threatened to suspend the deal because of the number of fake accounts. Last month, he tweeted that “the deal can’t go forward” until Twitter shows “proof” that bots only make up less than 5 percent of its users. He made similar comments at a conference in Miami, indicating that he may be trying to lay the groundwork to renegotiate the deal.

In doing so, Musk seemed to be laying the groundwork to argue that Twitter had a “material adverse change” or a change that would significantly affect its business, which could allow it to break the deal. Lawyers have questioned the merits of that argument, not least because Twitter has long revealed that fake accounts make up about 5 percent of its users. However, Musk’s letter on Monday represented a new strategy.

“What he’s actually doing is a much smarter attempt to get out of the merger deal,” said Ann Lipton, a professor of corporate governance at Tulane Law School. “If Twitter did indeed obstruct requests for information, and those requests for information were necessary or reasonable for Musk to be able to obtain its funding, which is what it claims in this letter, then it would possibly be a violation that would allow Musk to walk away. ”

Twitter could, in turn, argue that it doesn’t have the information Musk demands, or that it isn’t necessary to close the deal, he said.

A deal is expected to close on October 24. If it is not closed by then, either party may withdraw.

If the transaction was still awaiting regulatory approval at that point, Musk and Twitter would have another six months to close it.

Shares of Twitter fell 4 percent in early trading Monday to about $38.50 a share, well below the $54.20 price set in the deal with Musk.

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