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Elon Musk’s deal to buy Twitter is in peril

Talks with investors have cooled in recent weeks and Musk’s camp believes it can’t confirm Twitter’s claims about spam accounts

Elon Musk's deal to buy Twitter is in jeopardy. (Patrick T. Fallon/Bloomberg)
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Elon Musk’s deal to buy Twitter is in serious jeopardy, three people familiar with the matter say, as Musk’s camp concluded that Twitter’s figures on spam accounts are not verifiable.

Musk’s team has stopped engaging in certain discussions around funding for the $44 billion deal, including with a party named as a likely backer, one of the people said. The people spoke on the condition of anonymity because of the sensitivity of the ongoing discussions.

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Talks with investors have cooled in recent weeks as Musk’s camp has raised doubts about the recent data “fire hose” — a trove of data sold to corporate customers — they received from Twitter. Musk’s team’s doubts about the spam figures signal they believe they do not have enough information to evaluate Twitter’s prospects as a business, the people said.

Now that Musk’s team has concluded it cannot verify Twitter’s figures on spam accounts, one of the people said, it is expected to take potentially drastic action. The person said it was likely a change in direction from Musk’s team would come soon, though they did not say exactly what they thought that change would be.

The spam accounts are not the only reason Musk might try to wriggle out of the deal. Twitter’s share price has fallen dramatically since his takeover bid in April, leading to the impression that he is overpaying. And Musk also runs two other major companies, Tesla and SpaceX, along with some start-ups.

But the terms of the deal mean it wouldn’t be easy for Musk to walk away. Musk has agreed to complete it unless something major happens to Twitter’s business, and legal experts doubt the bot issue would qualify. Twitter, which initially fought Musk’s takeover bid, would be a weaker company if the deal falls apart than when Musk first bought a stake, and experts expect Twitter to fight to get it done. Twitter itself has said it intends to complete the deal. Even if Musk convinces a judge to let him walk away, he could still be on the hook for the deal’s $1 billion breakup fee.

Twitter accepted a $44 billion takeover offer from Elon Musk on April 25. Why did he want to buy the social media giant? (Video: Hadley Green, Julie Yoon/The Washington Post)

Twitter spokesperson Brian Poliakoff declined to comment, but referred to a statement the company made in June.

“Twitter has and will continue to cooperatively share information with Mr. Musk to consummate the transaction in accordance with the terms of the merger agreement,” Twitter said in the June statement. “We believe this agreement is in the best interest of all shareholders. We intend to close the transaction and enforce the merger agreement at the agreed price and terms.”

Musk didn’t respond to a request for comment.

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Musk shook up the social media world earlier this year with his unprecedented offer to take the company private, arguing he would be able to grow Twitter and make it more open and, in his mind, politically neutral. He said he would let former president Donald Trump back on the service and argued its content moderation practices infringed on free speech. Musk waived his right to take a deeper look at the company’s finances when he signed the deal.

But soon after, questions arose about whether he would actually follow through. A global sell-off in tech stocks deeply cut into his personal net worth, which he had leveraged to get commitments for the debt he needed to buy Twitter.

At Financial Times Future of the Car summit on May 10, the Tesla CEO said permanently banning then-President Donald Trump from Twitter was "flat-out stupid." (Video: Financial Times)

Musk’s enthusiasm for following through with the deal has been under question since at least May, when he said the deal was “on hold” until he could ascertain whether Twitter’s long-standing statement that fewer than 5 percent of accounts are bots or spam was accurate. He accused Twitter of withholding information, while the company said it was acting in good faith and providing everything the deal’s terms required it to.

“Twitter has not been cooperative,” said a person familiar with the discussions, speaking on the condition of anonymity because of the sensitive nature of the talks.

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But focusing on bots plays into Musk’s hand, lowering Twitter’s stock price and potentially helping him force Twitter to renegotiate the deal at a lower price.

Musk likely grasps the difficulty of backing out at this stage, prompting him to find legal reasons to justify an exit, according to Carl Tobias, law professor at the University of Richmond.

After raising the bot issue, for example, Musk said Twitter’s figures could constitute a “material adverse misstatement,” a likely reference to a contractual clause that gives him the ability to back out of the deal in the event of a significant event that fundamentally changes the business.

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“I think it’s an excuse,” Tobias said. “It doesn’t seem to me that a court would find that persuasive.” Tobias cited Musk’s own waiving of due diligence in his hasty acceptance of the deal. “It does seem to me that it undercuts a lot of arguments he could try to make otherwise,” he said.

The debate over bots on Twitter isn’t new, and has been a big part of the public conversation around the company for years. Musk frequently tweets his annoyance at the proliferation of spam and bot accounts on the site, writing in April he aimed to “defeat the spam bots or die trying!” through his Twitter bid. Outside researchers have sometimes said the number of bots and spam accounts could be much higher than Twitter’s estimate. But because of how quickly the tactics for creating and concealing the nature of fake accounts change, it is difficult for even experts to make strong pronouncements on who is right.

Twitter has been defending its process for measuring unwanted accounts, including in a news briefing on Thursday morning.

Twitter said that every three months, it takes a sample of the “Monetizable Average Daily Users,” the base of users which the company feels comfortable charging advertisers to reach. It analyzes that sample by hand to determine whether they are fake or not, including looking at information such as IP addresses that it can’t share publicly. It said it has always been comfortable that the total comes under the 5 percent threshold.

Twitter does not ban all bots, which include accounts that post otter pictures on the hour or the temperature in a specific location. Instead, it looks for indicators that suggest fake or coordinated spam activity, such as the mass creation of accounts or coordination among humans to artificially amplify a specific tweet, set of tweets or topic. The terms of the briefing precluded any of the experts being quoted directly or cited by name.

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Musk’s takeover has plunged Twitter into chaos, creating rifts between employees and unease for executives. Some workers, who fear Musk would roll back the safeguards Twitter has put in place to keep harmful content off the site, have started looking for new jobs and have predicted an exodus of employees if the billionaire buys the company.

Musk has already brushed up against Twitter executives by going after the company’s policies on its own site, and amplifying users who criticized the company’s top lawyer.

Even if the deal falls through, Twitter has been dragged through controversy, employee unease and a rocky stock performance for months. Its rebound won’t be straightforward.

“No matter what: The company is in play now,” one person familiar with the matter told The Post in May. “I don’t think it’s a situation where Elon walks away and things can go back to normal.”

Rachel Lerman and Joseph Menn contributed to this report.

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