Musk threatens to tear up Twitter’s deal with ‘major breach’

June 6 (Reuters) – (On June 7 this year, the report revised the transaction price in paragraph 4 from $52.20 to $54.20 per share)

Elon Musk warned Twitter Inc (TWTR.N) on Monday that he may walk away from a $44 billion deal to buy the social media company if it fails to provide the spam and fake account data he seeks.

This isn’t the first time Musk has publicly hinted that he might not buy Twitter. But a warning from Musk’s lawyers in a letter to Twitter’s chief legal officer Vijaya Gadde marked an escalation. It accused Twitter of “serious breach” of its trading obligations.

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Musk’s threat to tear up the deal comes as many tech stocks – including electric car maker Tesla Inc (TSLA.O ), the electric car maker he leads, tumbled on fears of a slowing economy and soaring inflation leading to higher interest rates.

Shares of Twitter closed down 1.5% on Monday at $39.57, a steep discount to the agreed-upon trade price of $54.20 a share, as investors bet that Musk would either persuade Twitter to agree to a lower deal price or leave.

In a letter to Twitter, Musk’s lawyers reiterated his request for bot account details and said he reserved all rights to terminate the acquisition because the company failed to provide him with information in a “clear and material breach” of its obligations.

Twitter responded by saying it planned to force the deal to close on agreed terms. “Twitter has and will continue to work with Musk to share information to complete the transaction under the terms of the merger agreement,” the company said in a statement.

Musk, a self-described free speech absolutist, said one of his top priorities was to remove “spam bots” from the platform.

He tweeted that the Twitter deal was “on hold” in mid-May and said he would not move forward with the proposal until the company proved that spam bots made up less than 5 percent of its total users. He has said he believes spam bots make up at least 20% of the user base.read more

Independent researchers predict that between 9% and 15% of millions of Twitter profiles may be bots.read more

In the letter, Musk said he needed the data to conduct his own analysis of Twitter users because he did not believe in the company’s “lax approach to testing.” Twitter has said it stands by its predictions and cannot provide proprietary information about how it was produced.

“He’s trying to walk away from the Twitter deal, and that’s the first shot,” said Wedbush analyst Dan Ives.

Legal experts told Reuters that the disclaimer Twitter used in its predictions about spam accounts gave it some protection against potential lawsuits, whether from Musk’s lawsuit over the deal or shareholders’ accusation that the company’s oversight statements were accurate. sexual litigation.

Even if Twitter’s estimates were incorrect, Musk would have to prove that the San Francisco-based company was trying to intentionally mislead — a high legal bar.read more

Dennis Dick, a proprietary trader at Bright Trading LLC, said: “Obviously Musk has buyer’s remorse, he’s doing everything he can to lower the price, and I think he might succeed.”

get lower prices

To be sure, even if the law were on Twitter’s side, Musk could leave or renegotiate the deal. That’s because any lawsuit is likely to be protracted, and Twitter may decide that agreeing to a lower price or getting compensation from Musk makes more sense than trying to force him to close the deal in court.

When the COVID-19 pandemic hit the global economy in 2020, several companies renegotiated or walked away from agreed acquisitions.read more

In one instance, French retailer LVMH (LVMH.PA) threatened to abandon its deal with Tiffany & Co. The U.S. jewelry retailer agreed to reduce the purchase price by $425 million to $15.8 billion.

As part of the deal, Musk is contractually obligated to pay a breakup fee of $1 billion if he can’t close the deal because the debt financing falls apart or regulators block it — Forbes puts his fortune at $219 billion a small part.

U.S. antitrust regulators last week decided not to further scrutinize Musk’s acquisition of Twitter, making it unlikely that it will fall for regulatory reasons. The EU is still reviewing the deal.read more

In Texas, Attorney General Ken Paxton announced Monday that he has opened an investigation into Twitter for what he said was “probably false reporting on its fake bot account,” which may have violated state law.

As part of the investigation, Paxton asked Twitter to hand over documents.

“It is my duty to protect Texans if Twitter misrepresents how many fake accounts there are to increase revenue,” Paxton said in a statement.

A Twitter spokesman said the company stood by its filings with the Securities and Exchange Commission.

Elon Musk threatens to walk away from deal
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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

Our Standard: The Thomson Reuters Trust Principles.

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