June 6 (Reuters) – (This June 7 story corrects deal price to $54.20 per share from $52.20 in paragraph 4)
Elon Musk warned Twitter Inc ( TWTR.N ) on Monday that he may back out of his $44 billion deal to buy the social media company if it fails to provide the data on spam and fake accounts he is demanding.
This was not the first time Musk had publicly suggested that his acquisition of Twitter might not happen. But the warning, delivered in a letter from Musk’s lawyers to Twitter chief legal officer Vijaya Gadde, marked an escalation. He accused Twitter of “material breach” of the agreement’s obligations.
Sign up now for FREE unlimited access to Reuters.com
Musk’s threats to scuttle the deal have coincided with a slide in many technology stocks – including the electric car maker he runs, Tesla Inc ( TSLA.O ) – amid concerns about an economic slowdown and higher interest rates in the face of inflation. furious.
Twitter shares ended up 1.5% at $39.57 on Monday, a steep discount to the agreed-upon price of $54.20 a share, as investors bet that Musk will either persuade Twitter to agree to a lower price of agreement or will leave.
In the letter to Twitter, Musk’s lawyers reiterated his request for details of the bot accounts and said he reserved all rights to complete the acquisition as the company was in “clear material breach” of its obligations by not providing that information.
Twitter responded that it planned to implement the termination of the agreement according to the agreed terms. “Twitter has and will continue to cooperatively share information with Musk to complete the transaction in accordance with the terms of the merger agreement,” the company said in a statement.
A self-proclaimed free speech absolutist, Musk has said that one of his priorities will be to remove “unwanted bots” from the platform.
He tweeted that the deal with Twitter was “temporarily on hold” in mid-May, saying he would not move forward with the offer until the company showed evidence that spam bots make up less than 5% of its total users. her. He has said he believes spam bots make up at least 20% of the user base. Read more
Independent researchers have predicted that 9% to 15% of the millions of Twitter profiles may be bots. Read more
In his letter, Musk said he needed the data to conduct his analysis of Twitter users because he did not believe in the company’s “weak testing methodologies.” Twitter has said it stands by its projections and cannot provide proprietary information about how it produces them.
“He’s trying to get out of the Twitter deal, this is the first shot across the bow,” Wedbush analyst Dan Ives said.
Legal experts have told Reuters that the disclaimers Twitter uses in its projections about spam accounts give it some protection against potential lawsuits, whether from Musk over the deal or shareholders over the accuracy of the company’s regulatory filings.
REUTERS/Lucy Nicholson/File Photo
Even if Twitter’s rating is incompetent, Musk would have to show that the San Francisco-based company was intentionally seeking to mislead — a high legal threshold. Read more
“It’s pretty clear that Musk has buyer’s remorse and he’s trying everything to get a price cut, and I think he might succeed,” said Dennis Dick, a proprietary trader at Bright Trading LLC.
A LOW PRICE INCREASE
To be sure, Musk may be able to walk away or renegotiate the deal even if the law is on Twitter’s side. That’s because any litigation is likely to be prolonged, and Twitter may decide it makes more sense to agree to a lower price or receive compensation from Musk instead of trying to force him to complete the transaction in court. .
Some companies renegotiated or walked away from agreed acquisitions when the COVID-19 pandemic broke out in 2020 and caused a global economic shock. Read more
In one case, French retailer LVMH ( LVMH.PA ) threatened to walk away from a deal with Tiffany & Co. The US jewelry retailer agreed to reduce the purchase price by $425 million to $15.8 billion.
As part of the deal, Musk is contractually obligated to pay a breakup fee of $1 billion — a fraction of his fortune, which Forbes puts at $219 billion — if he can’t complete the transaction because debt financing falls through or regulators block it.
US antitrust regulators last week decided not to further review Musk’s purchase of Twitter, making it unlikely that it would be blocked on regulatory grounds. The European Union is still reviewing the agreement. Read more
In Texas, Attorney General Ken Paxton announced Monday that he had begun an investigation into Twitter for what he said was “potentially false reporting on its fake bot accounts,” a potential violation of state law.
Paxton asked Twitter to hand over the documents as part of the investigation.
“If Twitter is misrepresenting how many accounts are fake to increase their revenue, I have a duty to protect Texans,” Paxton said in a statement.
A Twitter spokesman said the company stood by its filings with the US Securities and Exchange Commission.
Sign up now for FREE unlimited access to Reuters.com
Reporting by Nivedita Balu in Bengaluru; Additional reporting by Tiyashi Datta in Bengaluru, Krystal Hu and Greg Roumeliotis in New York and Diane Bartz in Washington
Our Standards: The Thomson Reuters Trust Principles.
