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Elon Musk threatens to end deal to buy Twitter, accusing company of withholding information about spam bot and fake accounts


DETROIT — Elon Musk is threatening to back 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 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.

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.

A message was left early Monday seeking comment from Twitter.

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 fake accounts – on Twitter – have led some pundits to question whether the billionaire wants to go through with the deal, or at least lower his offer.

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.

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 $1 billion in severance pay.

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 it and take legal action,” 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, cites a spat over a June 1 letter from Twitter in which the company said it had only to provide information relating to the closing of the sale. 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 argues 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.

Matt O’Brien reported from Providence, Rhode Island.

Copyright © 2022 by The Associated Press. All rights reserved.



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