Elon Musk threatens to terminate $ 44 billion deal on Twitter for “material violation” | Elon Musk

Elon Musk has accused Twitter of committing a ‘material breach’ of its $44billion (£35billion) deal to buy the company and threatened to terminate the deal, in the clearest indication to this day that the richest man in the world prepares to leave to take it back.

Musk’s lawyers wrote to Twitter accusing it of refusing to provide enough information about the number of fake users on the service, amid a simmering dispute over the number of spam and fake accounts that populate the platform.

In a letter to Twitter chief legal officer Vijaya Gadde, attorneys representing the Tesla CEO said he believed the company was “actively resisting and frustrating” his rights to access company data and information in the framework of the agreement. The letter said Twitter had not provided the information requested by Musk since May 9, adding that a formal response from the social media platform on June 1 was insufficient.

“Twitter’s latest offer to simply provide additional details regarding the company’s own testing methodologies, whether through written documents or verbal explanations, is tantamount to denying Mr. Musk’s requests for data.” , says the letter from US law firm Skadden, Arps, Slate, Meagher & Flom. . Musk’s legal team argues that not providing information about the fake accounts violates a clause in the agreement, a promise to act in a certain way during the sales process, which would allow him to withdraw from the agreement.

He 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 help him secure debt financing for the deal. He added that the company’s refusal to cooperate indicated concern about what Musk’s analysis might reveal.

The letter ended with a disclaimer that Musk reserved all of his rights under the agreement, including his right to withdraw from the deal and “terminate” it.

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“This is a clear breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all rights arising therefrom, including his right not to complete the transaction and his right to terminate the transaction. ‘merger agreement,’ the letter reads.

Twitter, whose CEO has posted a Twitter thread explaining how spam accounts are measured and the difficulties of doing so through a third party, said he continues to cooperate with Musk. He said: “Twitter has and will continue to cooperatively share information with Mr. Musk to complete the transaction pursuant to the terms of the merger agreement… We intend to complete the transaction and implement the merger agreement. merger at the agreed price and conditions.”

Musk’s letter, posted on the US financial watchdog’s website on Monday, follows a tweet-based negotiation process undertaken by the billionaire in recent weeks. On May 17, he tweeted that the deal “cannot move forward” until the issue of spam and fake accounts is resolved.

Fake accounts or spam accounts, called bot accounts, are automated and not managed by human users. They may use the reply function or direct messages to send advertisements or scams to users, or represent attempts to influence public discourse by tweeting political propaganda.

Twitter has consistently stated in its quarterly results since 2014 that it estimates its spam account problem accounts for less than 5% of its users. However, since closing the deal in April, Musk has raised concerns that the number of fake accounts could be much higher. The platform currently has 229 million users.

According to Brian Quinn, an associate professor at Boston College Law School, the formal agreement between Musk and Twitter underlying the takeover would allow the Tesla boss to walk out of the deal without paying severance pay. case of material breach.

Quinn added that Musk’s allegation of a breach was weak and his argument could ultimately be decided in court. One of the terms of the agreement states that Twitter must provide information “relating to the completion of the transactions contemplated by this agreement,” while another relates to any information required to secure the debt financing of the agreement. Quinn said Twitter could go to court to argue that additional data and information about the bots isn’t needed to close the deal or secure the debt financing.

“It is possible that the council will tire of the exchange of letters and go to court. The parties could end up renegotiating the price, but I don’t think Musk has good reason to walk away given the ample evidence that he’s trying to find an excuse to walk away,” Quinn said.

John Coffee, a law professor 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 won’t concede much given Musk’s fragile position.”

“If Musk had felt that this information on the percentage of bots was essential, he could have negotiated representation or exercised due diligence. He did neither. It was in a rush to close and now that market prices have reversed it is eager to delay,” Coffee said.

Shares of Twitter had fallen 2.5% to $39.17 by afternoon in New York. The Musk deal values ​​the company at $54.20 per share.

If Musk breaches the agreement by seeking to walk away without a reason covered by the document, Twitter has the option of asking him for a termination fee of $1 billion or asking a court to require Musk to finalize the transaction at the agreed price.

On Monday afternoon, Texas Attorney General Ken Paxton announced he was launching an investigation into Twitter’s “potentially false reporting of his fake bot accounts” to determine whether it violated the Deceptive Marketing Practices Act. from Texas.

Although he didn’t mention Musk by name, the survey echoes talking points used by the Tesla founder regarding the bot problem. Critics have speculated that Paxton is trying to appeal to Musk, who moved Tesla’s headquarters to Texas in 2021.

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