According to the lawyers, Musk has repeatedly requested the information since May 9, about a month after his offer to buy the company, in order to determine how many of the company’s 229 million accounts are fake.
Twitter CEO Parg Agrawal has stated that the company has consistently estimated that less than 5% of its accounts are spam. Musk, on the other hand, has disputed this, claiming in a May tweet, without providing evidence, that 20% or more of the claims are false.
Twitter Inc. shares fell 1.5 percent Monday, likely incensing Twitter shareholders who sued Musk late last month for inflating the stock price. Twitter’s stock has dropped more than 20% in the last month.
Twitter said in a statement Monday that it has been cooperatively sharing information with Musk “in accordance with the terms of the merger agreement,” and that the transaction is in the “best interests of all shareholders.”
“We intend to close the transaction and enforce the merger agreement at the agreed-upon price and terms,” the company stated.
Musk agreed to buy Twitter in April for $54.20 per share. Several of Musk’s subsequent actions, including a public spat with Twitter’s CEO about the fake accounts — on Twitter — have some experts wondering whether the billionaire intends to use his loud complaints to negotiate a lower deal price or even walk away entirely.
In the letter, Musk’s lawyers stated that Twitter has only offered to provide details about the company’s testing methods. However, they argue that this is “tantamount to refusing Mr. Musk’s data requests” and constitutes a “material breach” of the merger agreement, which gives Musk the option to cancel the deal if he so desires.
“This is a clear material breach of Twitter’s obligations under the merger agreement, and Mr. Musk reserves all rights resulting therefrom,” the letter states.
Musk wants underlying data to conduct his own verification of Twitter’s allegedly lax methodologies.
The Twitter sale agreement allows Musk to back out of the deal if the company causes a “material adverse effect.” That is defined as a change that has a negative impact on Twitter’s business or financial conditions. Twitter has maintained its commitment to the transaction throughout, though no shareholder vote has been scheduled.
Musk said last month that he had unilaterally put the deal on hold, which experts said he couldn’t do. If he walks away, he could face a $1 billion breakup fee.
Musk’s latest move demonstrates that he is “looking for a way out of the deal or something that will give leverage for a price renegotiation,” according to Brian Quinn, a law professor at Boston College. Quinn, however, believes it is unlikely to stand up in court because he has already waived his right to request additional due diligence.
“I doubt he’d be allowed to leave,” Quinn said. “At some point, the Twitter board will get tired of this and file a suit” asking a judge to force Musk to stick to the deal.
For years, Twitter has disclosed its bot estimates to the US Securities and Exchange Commission, while also warning that its estimate may be too low.
“If Twitter is confident in its publicly disclosed spam estimates, Mr. Musk does not understand the company’s reluctance to allow Mr. Musk to independently evaluate those estimates,” Musk writes, agreeing not to disclose or keep the data.
The bot issue has long been a source of frustration for Musk, who has over 96 million Twitter followers and whose name and likeness are frequently imitated by fake accounts promoting cryptocurrency scams. Musk appears to believe that such bots are a problem for the majority of other Twitter users, as well as advertisers who place ads on the platform based on the number of real people they expect to reach.
Musk’s lawyers argue that he is entitled to information about the core of Twitter’s business model in order to plan the transition to his ownership. Musk’s team says the company is obligated to provide data for any reasonable business purpose needed to complete the deal, citing a June 1 letter from Twitter in which the company stated that it only has to provide information related to closing the sale.
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