Is Elon Musk’s Twitter Deal falling Apart?

In a securities filing on Monday, Musk said he thinks Twitter is breaching their agreement by not meeting his demands for more information about spam and fake accounts. But behind the scenes, the deal is proceeding, according to people familiar with the matter. Both sides have been meeting regularly and sharing information, said two of the people, who weren’t authorized to speak publicly.

“He’s jockeying here — he’s trying to create a paper trail,” said Andrew Freedman, a partner at the law firm Olshan Frome Wolosky LLP, who is an expert in activist investment. “The unfortunate thing for Musk is that termination provisions under merger agreements don’t allow for buyer’s remorse.”

Musk's 'Buyer's Remorse' Won't Get Him Out of Twitter Deal

Elon Musk has sharply disagreed with Twitter’s assessment on bots.

Elon Musk formally and forcefully revived his assertion that Twitter Inc. has a serious bot problem, and threatened to walk away from his deal to buy the company if the social network doesn’t do more to prove its users are real people.

Legal experts widely speculated that Musk is using the bot issue as an excuse to abandon or renegotiate the deal, which has looked better and better for Twitter as the broader stock market has taken a dive in recent weeks.

In a securities filing on Monday, Musk said he thinks Twitter is breaching their agreement by not meeting his demands for more information about spam and fake accounts. But behind the scenes, the deal is proceeding, according to people familiar with the matter. Both sides have been meeting regularly and sharing information, said two of the people, who weren’t authorized to speak publicly.

“He’s jockeying here — he’s trying to create a paper trail,” said Andrew Freedman, a partner at the law firm Olshan Frome Wolosky LLP, who is an expert in activist investment. “The unfortunate thing for Musk is that termination provisions under merger agreements don’t allow for buyer’s remorse.”

Last month, Musk said he was putting the deal “on hold” until the social media giant can prove bots make up fewer than 5% of its users, as the company has stated in public filings. Musk has estimated that fake accounts make up at least 20% of all users.

But Twitter said it has indeed shared information with Musk on how it calculates the number of spam accounts on the service, and executives have told employees that Musk can’t just put the deal on hold as the two sides have signed a merger agreement. On Monday the company reiterated that it will hold Musk accountable to the terms of his proposed $44 billion takeover, a suggestion that even the company believes he may be trying to blow up the deal.

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

“The board of Twitter is going to get tired of this and file a lawsuit in Delaware and say, ‘I want a declaratory judgment saying that I am not in violation of the agreement and that Musk has to complete the deal,’” said Brian Quinn, an M&A professor at Boston College Law School. “That’ll be Twitter’s next step.”

Twitter’s shares slumped 1.49% on Monday, suggesting increased skepticism that Musk will finalize his $54.20-a-share offer and further widening the gap between the market’s expectations and the billionaire’s price. The shares have barely — and only briefly — surpassed $50 since Musk sprung his buyout plan on April 14. The deal came together at breakneck speed in part because Musk waived the chance to look at Twitter’s finances beyond what was publicly available.

Twitter Chief Executive Officer Parag Agrawal has sparred with Musk publicly on Twitter about bots. Agrawal has said the company has human reviewers look at “thousands of accounts” to determine the prevalence of bots, but added that he couldn’t share more specifics because of privacy concerns. “Unfortunately, we don’t believe that this specific estimation can be performed externally, given the critical need to use both public and private information,” Agrawal wrote in May.  

In the filing Monday, Musk sharply disagreed with Twitter’s assessment on bots.

“Twitter’s latest offer to simply provide additional details regarding the company’s own testing methodologies, whether through written materials or verbal explanations, is tantamount to refusing Mr. Musk’s data requests,” Musk’s lawyer wrote in a letter to Twitter’s top lawyer, Vijaya Gadde. “Twitter’s effort to characterize it otherwise is merely an attempt to obfuscate and confuse the issue. Mr. Musk has made it clear that he does not believe the company’s lax testing methodologies are adequate so he must conduct his own analysis. The data he has requested is necessary to do so.”

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