June 6 (Reuters) – Elon Musk warned Twitter Inc (TWTR.N) on Monday that it could walk away from its $44 billion deal to acquire the social media company if it did not provide spam and email data. fake accounts he is looking for.
This wasn’t the first time Musk has publicly suggested his Twitter acquisition might not happen. But the warning, delivered in a letter from Musk’s lawyers to Twitter’s chief legal officer, Vijaya Gadde, marked an escalation. He accused Twitter of being in “material breach” of its obligations under the agreement.
Musk’s threats to tear up the deal coincided with a slump in many tech stocks – including the electric car maker he leads, Tesla Inc (TSLA.O) – amid concerns about an economic slowdown and rates higher interest rates in the face of runaway inflation. .
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Twitter shares ended down 1.5% at $39.57 on Monday, a steep discount from the agreed price of $52.20, as investors bet Musk will convince Twitter to agree to a lower sale price. or go away.
In the letter to Twitter, Musk’s attorneys reiterated his request for bot account details and said he reserves all rights to terminate the acquisition as the company is in “clear material violation.” ” of his obligations by not providing him with the information.
Twitter replied that it planned to force the conclusion of the agreement on the agreed terms. “Twitter has and will continue to cooperatively share information with Musk to complete the transaction pursuant to the terms of the merger agreement,” the company said in a statement.
A self-proclaimed free speech absolutist, Musk said one of his priorities would be to remove “spam bots” from the platform.
He tweeted that the Twitter deal was “temporarily suspended” in mid-May, saying he wouldn’t move forward with the deal until the company proved that spambots make up less than 5% of its business. total users. He said he believes spambots make up at least 20% of the user base. Read more
Independent researchers have predicted that 9-15% of millions of Twitter profiles could be bots. Read more
In his letter, Musk said he needed the data to conduct his own analysis of Twitter users because he didn’t believe in the company’s “lax testing methodologies.” Twitter said it stands by its projections and could not provide exclusive information on how it produced them.
“He’s trying to get away from the Twitter deal, that’s the first shot,” said Wedbush analyst Dan Ives.
Legal experts told Reuters that the disclaimers used by Twitter in its spam account screenings gave it some protection against possible lawsuits, whether from Musk over the agreement or shareholders regarding the accuracy of corporate regulatory filings.
Even if Twitter’s estimate is wrong, Musk would have to show that the San Francisco-based company was seeking to deliberately mislead – a high legal threshold. Read more
“It’s pretty obvious that Musk has buyer’s remorse and is trying anything to get a price cut, and I think he can pull it off,” said Dennis Dick, an owner trader at Bright Trading. LLC.
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Granted, Musk might be able to walk away or renegotiate the deal even if the law is on Twitter’s side. This is because any litigation is likely to drag on, and Twitter may decide it makes more sense to accept a lower price or receive compensation from Musk rather than trying to force him to close the deal in court.
Several companies renegotiated or backed out of agreed acquisitions when the COVID-19 pandemic broke out in 2020 and caused a global economic shock. Read more
In one case, French retailer LVMH (LVMH.PA) threatened to walk away from a deal with Tiffany & Co. The US jewelry retailer agreed to drop the acquisition price from $425 million to $15.8 billion. dollars.
As part of the deal, Musk is contractually obligated to pay a $1 billion break fee — a slice of his fortune set by Forbes at $219 billion — if he can’t complete the deal because the debt financing collapses or regulators block it.
Last week, U.S. antitrust regulators decided against further scrutiny of Musk’s acquisition of Twitter, making it unlikely he would stumble on regulatory grounds. The European Union is still reviewing the deal. Read more
In Texas, Attorney General Ken Paxton announced on Monday that he has opened a Twitter investigation for what he called a “potentially false report of his fake bot accounts,” a potential violation of state law. .
Paxton asked Twitter to turn over documents as part of the investigation.
“If Twitter misrepresents the number of fake accounts to increase their revenue, I have a duty to protect Texans,” Paxton said in a statement.
A Twitter spokesperson said the company stands by its filings with the U.S. Securities and Exchange Commission.
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Reporting by Nivedita Balu in Bengaluru; Additional reporting by Tiyashi Datta in Bengaluru, Krystal Hu and Greg Roumeliotis in New York and Diane Bartz in Washington Editing by Anil D’Silva and Matthew Lewis
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