Elon Musk said that Twitter has violated the terms of his acquisition bid by refusing to provide data to clear his doubts about bots, giving him the potential right to walk away from the deal.
Musk’s lawyer sent a letter to SEC on Monday, accusing Twitter of breaching his rights to the information and data. The deal has faced hurdles from the beginning. Twitter had resisted Musk’s attempt to make a hostile takeover by adopting the poison pill after the Tesla CEO purchased 9% of the microblogging app’s shares in April.
However, the trouble shifted as Musk started questioning the actual number of Twitter users. Musk was determined to understand how much of Twitter’s userbase is made up of bots, rather than actual human beings.
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Though Twitter provided an answer, saying bots and other false accounts make up less than 5% of its active users, Musk is seeking data from the social network to conduct his own analysis. The deal took the wrong turn as Twitter is clearly not willing to release the data. Now Musk has accused it of violating their original agreement, in which he waived the usual due diligence that usually accompanies such buyouts.
“Mr. Musk believes the company is actively resisting and thwarting his information rights (and the company’s corresponding obligations) under the merger agreement,” the letter said. “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.”
Musk is claiming that Twitter’s unwillingness to provide him with the data gives him the right to walk away from the deal without having to pay the penalty.
Musk will pay a $1 billion breakup fee if he chooses to walk away from the deal. In June, Twitter said the required waiting period for government oversight of large mergers had elapsed and it’s ready to enforce its end of the agreement.
Weighing in on the matter, analysts said Musk is looking for an excuse to abandon the deal which has indirectly cost Tesla a fortune. The electric vehicle company has lost more than $400 billion since Musk started his Twitter bid in April.
A Twitter spokesperson said in response to the letter, that the company is committed to the deal only on the terms of the original merger agreement.
“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,” they 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.”
In May, Twitter CEO Parag Agrawal had said that Musk’s method for calculating bot accounts wouldn’t work, because the analysis would require private information that Twitter can’t share. Musk responded with a poop emoji.
While both Musk and Twitter are not ready to back down on their stand on the bots, the SpaceX CEO is getting a surprising backing. Texas Attorney General Ken Paxton announced Monday he is probing Twitter for lying to Texans about the number of users on its platform.
“Today I’m investigating Twitter for potentially misleading Texans on the number of its “bot” users. I have a duty to protect Texans if Twitter is misrepresenting how many accounts are fake to drive up their revenue,” he said.
As part of the probe, Paxton is demanding all electronic messages related to bots and ads – including text messages, voice mail and other documents that matter, from Twitter employees. It is not clear if the demand will be honored via the Freedom of Information Act – if that happens, it will heavily impact the deal.