Elon Musk says lack of information on Twitter violates agreement

Elon Musk officially and forcefully revives his assertion that Twitter Inc. is having serious bot problems and is threatening to walk away from its acquisition deal if the social network doesn’t do more to prove its users are real.

Elon Musk officially and forcefully revives his assertion that Twitter Inc. is having serious bot problems and is threatening to walk away from its acquisition deal if the social network doesn’t do more to prove its users are real.

Legal experts widely speculate that Musk is using the bot issue as an excuse to walk away or renegotiate the deal, which is getting better and better for Twitter as the broader stock market has fallen over the past few days. recent weeks.

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In a securities filing on Monday, Musk said he believes Twitter is in breach of its agreement by failing to respond to his request for more information about spam and fake accounts. But behind the scenes, the deal is underway, according to people familiar with the matter. The two sides have met regularly and shared information, the two people are not authorized to speak in public said.

“He’s joking here — he’s trying to make a trail,” said Andrew Freedman, a partner at law firm Olshan Frome Wolosky LLP, an expert in activist investing. on paper. “The unfortunate thing for Musk is that the termination terms under the merger agreement don’t allow for buyer remorse.”

Last month, Musk said he was pausing the deal until the social media giant could demonstrate bots account for less than 5% of users, as the company claimed in its public filing. Musk has estimated that fake accounts make up at least 20% of all users.

But Twitter said it did indeed share information with Musk about how it calculates the number of spam accounts on the service, and that executives told employees that Musk couldn’t suspend the deal because the two sides had already broken the deal. sign the merger agreement. On Monday, the company reiterated that it would hold Musk accountable to the terms of his proposed $44 billion takeover, a suggestion that even the company believes he could trying to break the deal.

In a statement, Twitter said it “has and will continue to collaborate on information sharing” with Musk. The company said it believes the acquisition is in the best interests of all shareholders and intends to “close the transaction and enforce the merger agreement at the agreed price and terms.” It’s possible Twitter will try to sue Musk to close the deal if he tries to walk away from the acquisition.

“Twitter’s board is going to get tired of this and file a lawsuit in Delaware saying, ‘I want a verdict stating that I didn’t violate the agreement and that Musk must complete the agreement'” “That’s going to be the next step for Twitter,” said Brian Quinn, a professor of M&A at Boston College Law School.

Shares of Twitter fell 1.49% on Monday, suggesting growing skepticism that Musk will lock in a $54.20/share offer and further widening the gap between market expectations and the price. of billionaires. The stock has barely – and only briefly – crossed $50 since Musk launched the buyback plan on April 14. The deal came together at breakneck speed in part because Musk gave up the opportunity to look at Twitter’s finances beyond what was already publicly available.

Twitter CEO Parag Agrawal publicly talked to Musk on Twitter about bots. Agrawal said the company has human reviewers who look at “thousands of accounts” to determine the bot’s popularity, but added that he couldn’t share more specifics because of concerns about bots. privacy. “Unfortunately, we do not believe that this particular estimate can be made externally, given the critical need to use both public and private information,” Agrawal wrote in May.

In his filing Monday, Musk strongly disagreed with Twitter’s assessment of the bot.

“Twitter’s latest offer is simply providing additional details regarding the company’s own testing methodology, whether through written documentation or verbal explanation, which is equivalent to denied Mr. Musk’s data request,” Musk’s attorney wrote in a letter to Twitter’s top lawyer, Vijaya Gadde. “Twitter’s attempt to characterize it is merely an attempt to obfuscate and confuse matters. Mr. Musk has made it clear that he does not believe the company’s lax testing methods are adequate, so he must conduct his own analysis. The data he has requested is necessary to do so”.

Musk believes that the company’s objection to providing more information is “a clear and serious violation of Twitter’s obligations under the merger agreement, and Mr. Musk reserves all rights thereto, including the right to failure to complete the transaction and the right to terminate the merger agreement”.

Jill Fisch, an expert in business and law at the University of Pennsylvania’s Carey School of Law, said such filings are not legally necessary. “This is him using SEC filings to access capital markets with this statement.”

Complicating Musk’s claims, however, is the fact that he has publicly complained about Twitter bots since before he even made his offer to buy the company.

“Clearly he was aware of the bot problem — he was open about it as something he wanted to fix, as an area to create value,” Freedman said. “He would likely have to prove that Twitter’s methodology was reckless or negligent” to force the company to renegotiate the deal.

The proposed takeover includes a billion dollars in parting fees for each party, but Musk couldn’t bypass it by paying the fee. The merger agreement includes a performance-specific clause that allows Twitter to force Musk to complete the deal, according to initial filings. That could mean that, if the deal ends up in court, Twitter could secure an order forcing Musk to complete the merger rather than demanding monetary compensation for any breaches of it.

Musk’s attorney, Mike Ringler of Skadden, Arps, Slate, Meagher & Flom, said Twitter must cooperate by providing the requested data so Musk can secure the debt financing needed to complete the deal.

That statement is also complicated by the fact that many financial institutions have sent letters pledging debt financing to Musk, Quinn said.

Musk probably has a different experience with bots on the platform than most people. Automated account designers program them to follow popular users on a website, so that they fit into the crowd and look more human. Musk, with 96 million followers, probably attracts a higher percentage of bots than most users. His image was also used by electronic money account to run the scam.

Although many outside estimates put a portion of Twitter bots above the 5% threshold that the company has stated, their assessments and methodologies vary. Andrea Stroppa, a former World Economic Forum data advisor and veteran of anti-counterfeiting online, estimates that bot accounts have accounted for about 10% of Twitter’s global audience in the past nine years. past year.

The researcher says the rate goes up to 20% for some specific topics like cryptocurrencies, and over 30% for accounts that engage in certain conspiracy theories.

“There’s a lot of money on the table, so he’s going to have to have a lot of evidence to prove that Twitter is worth giving up rather than fighting to get it,” said Ann M. Lipton, associate professor of business law. cost”. and entrepreneurship at Tulane University School of Law in New Orleans. It could be “an ugly court battle.”

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