Elon Musk has threatened to walk away from his $44bn acquisition of Twitter, complaining that the social media company has failed to provide sufficient information about spam and fake accounts.
Musk has repeatedly criticized Twitter’s claim that less than 5 per cent of its monetizable daily active users are bots, warning last month that his takeover “cannot move forward” unless the platform provides proof.
In a letter to Twitter’s chief legal officer that was disclosed in a regulatory filing on Monday, Musk’s lawyers at Skadden, Arps, Slate, Meagher and Flom wrote that the Tesla chief believes the company has “refused to provide the information that [he] has repeatedly requested since May 9”.
But Twitter insisted it would hold Musk to the original merger agreement. “Twitter has and will continue to cooperatively share information with Mr Musk to consume the transaction in accordance with the terms of the merger agreement,” a spokesperson said. “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.”
Since Musk and Twitter announced the deal in April, shares in Tesla along with high-growth tech companies have fallen sharply. Observers have noted that Musk, because of the market turmoil, may try to find an excuse to reduce the transaction price or walk away altogether.
Musk’s lawyers said that Twitter was “actively resisting and thwarting his information rights (and the company’s corresponding obligations) under the merger agreement” and this “clear material breach of Twitter’s obligations” would allow Musk to “terminate the merger agreement”.
The letter broaches the idea that the deal financing from Wall Street banks could be at risk if Twitter does not provide the information that has been requested. “As Twitter’s prospective owner, Mr Musk is clearly entitled to the requested data to enable him to prepare for transitioning Twitter’s business to his ownership and to facilitate his transaction financing,” Skadden wrote in his letter.
It is not straightforward for Musk to escape his obligation to close the transaction. A financing failure may provide one route, although it would still involve him paying a $1bn termination fee.
Such legal maneuvers to walk away from transactions rarely work but Musk may be seeking negotiating leverage to force Twitter into a settlement that would allow him to pay to escape from buying the company.
One top Wall Street lawyer who is not involved in the deal said: “It’s hard to see how financing sources need this info given Twitter has been able to raise debt and equity to date, and they are definitely not entitled to it under their commitment letter . But it’s something of a self-fulfilling prophecy in that Elon demanding it will make the banks want it, etc. So they can indeed collide to make a mess of it.”
Twitter’s shares were 2 per cent lower on Monday at $39.28, well below Musk’s $54.20 offer price.
Last month, Twitter chief executive Parag Agrawal addressed Musk’s fake accounts concerns in a lengthy thread, insisting that the company had shared an “overview” of its estimation process with him but could not share private data that would be necessary to replicate the process externally.
In its letter on Monday, Skadden said that any third parties reviewing the data would adhere to a non-disclosure agreement and that Musk would not retain or otherwise use “competitively sensitive information” if the deal did not close. “If Twitter is confident in its publicized spam estimates, Mr Musk does not understand the company’s reluctance to allow Mr Musk to independently evaluate those estimates,” the lawyers added.
Additional reporting by Hannah Murphy in San Francisco