Elon Musk threatened to back out of his $44 billion deal to buy Twitter, accusing the company of “actively resisting” his requests for information about how many bogus accounts are on the social media platform.
“This is a clear material breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement,” Musk’s legal team wrote in the letter.
The Tesla CEO said in mid-May that the deal was on hold as he requested new info from Twitter on how it determined how many fake accounts were on its site. Twitter said Monday it has been sharing info with Musk and that it intends to “close the transaction and enforce the merger agreement at the agreed price and terms.”
The move adds to speculation that Musk is trying to wriggle free of the agreement, or renegotiate it for a lower price, though securities law experts have said that Musk backing out at this stage could result in a protracted and messy legal battle. Musk waived his right to take a deeper look at the company when he signed the initial deal to buy it in April, and the purchase agreement allows Twitter to force Musk to go through with the deal unless he can show the company misled him or in the case that a major, adverse event changes the value of the company. Even if Twitter does not go to court to force Musk to close the deal, he may still have to pay a $1 billion breakup fee.
“We believe this is much more than a threat,” Dan Ives, managing director at Wedbush Securities, said. “He is trying to bail out of the deal.”
Ives said the faulty account issue was always going to be the “material breach” Musk would use to secure his exit. “It will help remove a major overhang on Tesla.”
Since he first voiced interest in Twitter in April, Tesla’s stock — the source of much of Musk’s personal fortune — has been pummeled amid a broader sell-off of tech stocks. Last week, he said Tesla would cut salaried staff by 10 percent and put a freeze on hiring, telling executives in an email that he had a “super bad feeling” about where the economy was headed. (Over the weekend, though, he backtracked, saying Tesla’s total head count would increase while salaried positions would be “fairly flat.”)
Spam bots — accounts that peddle cryptocurrency scams and otherwise seek to exploit vulnerable users — have long been a pet peeve of Musk, who is one of the platform’s most popular users with over 96 million followers and who regularly encounters such spam accounts on the site. Twitter has long struggled to identify and take down bots, a task complicated by the fact that the platform allows people to post anonymously and to make automated accounts. The company’s own estimates put the number of spam accounts at 5 percent or less, but Musk has been calling for data the social media company says it cannot provide to verify the true figure.
On Monday, the Texas Attorney General’s office said it would investigate Twitter over the issue of whether it has been upfront about how many fake accounts it believes it has. Tesla moved its official headquarters to Texas last year.
Twitter’s shares slumped 2.9 percent at midday. Tesla’s shares edged up 1.5 percent.