Elon Musk said he believes Twitter Inc. is breaching their merger agreement by not meeting his demands for information about spam and fake accounts, injecting another twist into a takeover saga marked by the billionaire’s serial outbursts. The shares fell about five per cent Monday morning in New York.
Musk believes Twitter is “actively resisting” and “thwarting his information rights” by refusing to disclose the information, according to an amended securities filing on Monday. Last month, Musk said he wouldn’t proceed with his US$44-billion takeover of Twitter unless the social media giant can prove bots make up fewer than five per cent of its users, as the company has stated in public filings. Musk has estimated that fake accounts make up at least 20 per cent of all users.
Monday’s stock slump reinforced doubts that Musk would finalize his US$54.20-a-share offer, further widening the gap between the market’s expectations and the billionaire’s price. The shares have barely — and only briefly — surpassed US$50 since Musk sprung his buyout plan on April 14.
Twitter Chief Executive Officer Parag Agrawal has sparred with Musk publicly on Twitter about bots. Agrawal has said the company has human reviewers look at “thousands of accounts” to determine the prevalence of bots, but added that he couldn’t share more specifics because of privacy concerns. “Unfortunately, we don’t believe that this specific estimation can be performed externally, given the critical need to use both public and private information,” Agrawal wrote in May.
Twitter didn’t immediately respond to a request for comment.
In the filing Monday, Musk sharply disagreed with Twitter’s assessment.
“Twitter’s latest offer to simply provide additional details regarding the company’s own testing methodologies, whether through written materials or verbal explanations, is tantamount to refusing Mr. Musk’s data requests,” according to the filing, which was addressed to Twitter’s legal counsel, Vijaya Gadde . “Twitter’s effort to characterize it otherwise is merely an attempt to obfuscate and confuse the issue. Mr. Musk has made it clear that he does not believe the company’s lax testing methodologies are adequate so he must conduct his own analysis. The data he has requested is necessary to do so.”
Musk believes the company’s resistance to provide more information 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.”
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Twitter’s board has said it plans to enforce the terms of the merger, saying the transaction is in the best interest of all shareholders.
The proposed takeover includes a US$1-billion breakup fee for each party, but Musk can’t just walk away by paying the charge.
The merger agreement includes a specific performance provision that allows Twitter to force Musk to consummate the deal, according to the deal filing. That could mean that, should the deal end up in court, Twitter might secure an order obligating Musk to complete the merger rather than winning monetary compensation for any violations of it.