Elon Musk threatens to exercise right to cancel Twitter purchase agreement over fake bot counts
Musk reserves his right not to complete the transaction without incurring any fines stipulated in the agreement.
Elon Musk’s lawyers dispatched a letter to Twitter threatening to terminate Musk’s agreement to purchase the social media platform over its inflated user data.
In April, Twitter and Musk agreed to a deal worth $44 billion, but Musk has asked for information on fake accounts before his purchase of Twitter could continue. The billionaire claims that spam and bot accounts could have a massive impact on Twitter's actual worth as a company.
In recent weeks, Musk has raised concerns that Twitter has not been exactly forthcoming in its estimation of how many of its users are real humans and not bot accounts.
If 25% of the users are bots then the Twitter acquisition deal should cost 25% less.
— Ian Miles Cheong (@stillgray) May 21, 2022
Absolutely
— Elon Musk (@elonmusk) May 21, 2022
On Monday, the Tesla and SpaceX chief materialized his demands through a legal letter to Twitter and the SEC.
Musk accuses Twitter of “resisting and thwarting” his inquiries about its estimation of fake accounts present on the platform, per the letter.
According to the letter, which was sent to Twitter’s chief legal officer, Vijaya Gadde, Twitter's unwillingness to provide the information requested by Musk presents a “clear material breach,” of their agreement to sell the platform to the Tesla CEO.
As such, Musk reserves his right not to complete the transaction without incurring any fines stipulated in the agreement.
“Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement,” wrote Skadden attorney Mike Ringler, CNBC reported.
Ringler said that Twitter must provide the information Musk requests, as per the agreement the two parties signed. Ringler disputes Twitter’s claim that it is not required to provide the data to close the deal.
“Mr. Musk is entitled to seek, and Twitter is obligated to provide,” Ringler stated in the letter, “information and data for, inter alia, 'any reasonable business purpose related to the consummation of the transaction.’”
“At this point, Mr. Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk's own analysis of that data will uncover,” he added.
The letter, which was submitted to the SEC posits that “If Twitter is confident in its publicized spam estimates, Mr. Musk does not understand the company's reluctance to allow Mr. Musk to independently evaluate those estimates.”
“As noted in our previous correspondence, Mr. Musk will of course comply with the restrictions provided under Section 6.4, including by ensuring that anyone reviewing the data is bound by a non-disclosure agreement, and Mr. Musk will not retain or otherwise use any competitively sensitive information if the transaction is not consummated,” it states.
Musk has repeatedly raised his concerns about the instances of fake Twitter accounts present on the platform. Twitter claims that there are fewer than 5% fake or bot accounts on its platform – a number that remains in contention by both Musk and his millions of Twitter followers, who sat that the figure is being undercounted.
Should Musk be proven right, Musk could negotiate a lower buying price, less than the $44 billion originally offered and agreed upon.
Musk and his team say that they are willing to perform their own calculations, but Twitter CEO Parag Agrawal says that Musk would need access to information that is not currently public in order to do so, suggesting that he would have to complete the deal to perform the research.
If Twitter is so confident in its own numbers, it should have no problem adding a stipulation to the agreement that if Musk and his team find Twitter’s own calculations to be within acceptable margins he should cough up the full $44 billion figure after purchasing the company for a lower cost.
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