Musk threatens to break Twitter deal for “material breach”

June 6 (Reuters) – (June 7, the story corrects the bid price to $ 54.20 per share from $ 52.20 in paragraph 4)

Elon Musk warned Twitter (TWTR.N) on Monday that it could abandon its $ 44 billion deal to acquire the social media company if it does not provide the spam and fake account data it is looking for.

This was not the first time Musk had publicly suggested that his Twitter acquisition might not happen. But the warning, delivered in a letter from Musk’s lawyers to Twitter’s chief legal officer Vijaya Gadde, marked an escalation. He accused Twitter of being in “material breach” of its obligations under the agreement.

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Musk’s threats to break the deal have coincided with a drop in many technology stocks, including its leading electric car maker, Tesla Inc (TSLA.O), amid concerns about an economic slowdown and interest rates. higher in the face of inflation. .

Shares of Twitter fell 1.5% to $ 39.57 on Monday, a big discount from the agreed price of $ 54.20 per share, as investors bet that Musk convinced Twitter to accept a lower price or will leave.

In the letter on Twitter, Musk’s lawyers reiterated their request for details on the bot accounts and said that all rights were reserved to terminate the acquisition, as the company was in a “clear breach material “of its obligations by not providing the information.

Twitter responded that it planned to enforce the termination of the agreement on the agreed terms. “Twitter has shared and will continue to share information cooperatively with Musk to complete the transaction in accordance with the terms of the merger agreement,” the company said in a statement.

Musk, a self-proclaimed absolutist of free speech, has said one of his priorities will be to remove “spam bots” from the platform.

He tweeted that the Twitter deal was “temporarily suspended” in mid-May, saying it would not move forward with the offer until the company shows evidence that spam bots represent less than 5% of its total users. . He said he believes spam bots make up at least 20% of the user base. Read more

Independent researchers have projected that between 9% and 15% of millions of Twitter profiles may be robots. Read more

In his letter, Musk said he needed the data to conduct his own analysis of Twitter users because he did not believe in the company’s “lax test methodologies.” Twitter has said it maintains its projections and cannot provide patented information on how it produces them.

“He’s trying to get away from the Twitter deal, this is the first shot in the bow,” Wedbush analyst Dan Ives said.

Legal experts have told Reuters that the disclaimers that Twitter used in its projections of spam accounts give it some protection against possible lawsuits, either from Musk over the deal or from shareholders over the accuracy of the company’s regulatory statements.

REUTERS / Lucy Nicholson / Archive Photo

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Even if Twitter’s estimate is off, Musk should show that the San Francisco-based company was deliberately trying to deceive, a high legal threshold. Read more

“It’s pretty obvious that Musk has the buyer’s remorse and is trying anything to get a price reduction, and I think he can succeed,” said Dennis Dick, a trader who owns Bright Trading LLC.


Surely Musk can step aside or renegotiate the deal even if the law is on Twitter’s side. This is because any litigation is likely to be prolonged, and Twitter may decide that it makes more sense to accept a lower price or receive compensation from Musk instead of trying to force it to complete the transaction in court.

Several companies renegotiated or abandoned the agreed acquisitions when the COVID-19 pandemic erupted in 2020 and caused a global economic shock. Read more

In one case, French retailer LVMH (LVMH.PA) threatened to abandon an agreement with Tiffany & Co. The U.S. 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 $ 1 billion break-in fee, part of his $ 99 billion fortune set by Forbes, if he is unable to complete the transaction because of debt financing. it collapses or the regulators block it.

U.S. antitrust regulators decided last week not to further consider Musk’s acquisition of Twitter, making it unlikely that he would stumble for regulatory reasons. The European Union is still reviewing the agreement. Read more

In Texas, Attorney General Ken Paxton announced Monday that he had launched an investigation into Twitter for what he said was “potentially false information about his fake bot accounts,” a possible violation of state law.

Paxton asked Twitter to smooth out documents as part of the investigation.

“If Twitter is misrepresenting how many accounts are fake to increase its revenue, I have a duty to protect jeans,” Paxton said in a statement.

A Twitter spokesman said the company kept its documents before the U.S. Securities and Exchange Commission.

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Report by Nivedita Balu in Bangalore; Additional report by Tiyashi Datta in Bangalore, Krystal Hu and Greg Roumeliotis in New York and Diane Bartz in Washington Edited by Anil D’Silva and Matthew Lewis

Our standards: Thomson Reuters’ principles of trust.

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