“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,” said the letter from US law firm Skadden, Arps, Slate, Meagher & Flom. Musk’s legal team is arguing that failure to provide information about false accounts breaches a covenant in the agreement, a promise to act in a certain way during the sale process, which would allow him to walk away from the deal.
It said Twitter’s methods for testing fake accounts were “lax” and that Musk needed data from the company to conduct his own analysis, as well as to help him secure debt financing for the deal. It added that the company’s refusal to cooperate indicated a concern for what Musk’s analysis might uncover.
The letter concluded with a warning that Musk reserved all his rights under the agreement, including his right to walk away from the deal and “terminate” it.
“This is a clear material breach of Twitter’s obligations under the merger agreement and Mr Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement,” the letter said.
Twitter, whose CEO has published a Twitter thread explaining how spam accounts are measured and the difficulties of doing so via a third party, said it continued to cooperate with Musk. It said: “Twitter has and will continue to cooperatively share information with Mr Musk to consummate the transaction in accordance with the terms of the merger agreement … We intend to close the transaction and enforce the merger agreement at the agreed price and terms.”
Musk’s letter, published on the website of the US financial watchdog on Monday, follows a negotiation-by-tweet process undertaken by the billionaire in recent weeks. On 17 May he tweeted that the deal “cannot move forward” until the spam and fake account issue had been resolved.
Fake or spam accounts, known as bot accounts, are automated and not run by human users. They may use the reply function or direct messages to send adverts or scams to users, or represent attempts to influence public discourse by tweeting political propaganda.
Twitter has stated consistently in its quarterly results since 2014 that it estimates its spam account problem to represent less than 5% of its users. However, since striking the deal in April Musk has raised concerns that the number of false accounts could be much higher. The platform currently has 229 million users.
The formal agreement between Musk and Twitter underpinning the takeover would allow the Tesla boss to walk away from the deal without paying a break fee if there is a material breach, according to Brian Quinn, an associate professor at Boston College law school.
Quinn added that Musk’s allegation of a breach was weak and that his argument could ultimately be decided in court. One of the deal covenants states that Twitter must provide information “related to the consummation of the transactions contemplated by this agreement”, while another relates to any information required to secure debt financing for the deal. Quinn said Twitter could go to court to argue that further data and information on bots is not needed to close the deal or secure the debt financing.
“It is possible the board will tire of the back and forth letters and will go to court. The parties might end up renegotiating the price, but I don’t think Musk has a strong case to walk given the abundant evidence of his trying to find an excuse to walk away,” said Quinn.
John Coffee, a professor of law at Columbia University, said Musk was paying the price for trying to rush the deal. He said he expected the Tesla chief to seek a lower price for the deal although “Twitter will not concede that much given Musk’s shaky position”.
“If Musk had felt that this information about the percentage of bots was critical, he could have negotiated for a representation or done due diligence. He did neither. He was in a rush to close and now that market prices have reversed, he is eager to delay,” Coffee said.
Twitter shares had fallen 2.5% to $39.17 by afternoon trading in New York. The Musk agreement values the company at $54.20 a share.
If Musk breaches the deal agreement by seeking to walk away without a reason covered by the document, Twitter has the option of seeking a $1bn termination fee from him or asking a court to require Musk to complete the transaction at the agreed price.
On Monday afternoon, Texas attorney general Ken Paxton announced he was launching an investigation into Twitter for “potentially false reporting over its fake bot accounts” to determine if doing so had violated the Texas Deceptive Trade Practices Act.
Though he did not mention Musk by name, the investigation echoes talking points used by the Tesla founder regarding the bot issue. Critics have speculated Paxton is trying to appeal to Musk, who moved Tesla’s headquarters to Texas in 2021.
