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Elon Musk threatens to cancel Twitter buyout

MoneyWatch: Is Elon Musk trolling Twitter?
MoneyWatch: Is Elon Musk trolling Twitter over $44 billion deal? 04:00

Elon Musk is threatening to pull his $44 billion Twitter buyout offer, accusing the company of hiding information about the number of bot and spam accounts on the platform.

In a letter filed with the Securities and Exchange Commission Monday, lawyers for Musk said that Twitter has refused to hand over its user data so that Musk can vet the company's user base.

Twitter has long reported that about 5% of its users are bots. However, after the company and Musk reached a buyout agreement in April, the Tesla CEO has repeatedly called the bot number into question and demanded data to do his own verification.

"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" to determine how many accounts are fake, lawyers representing Musk wrote in Monday's letter. "The data he has requested is necessary to do so."

The letter says that Twitter has "refused to provide the information that Mr. Musk has repeatedly requested since May 9, 2022." Twitter has offered to explain its testing methodology to Musk, according to the letter, which calls it "tantamount to refusing" the data request.

The letter say if Twitter does not hand over the data, Musk will consider it a "material breach" of the agreement and will walk out of the deal.

Elon Musk says Twitter deal "on hold" over spam accounts 04:30

"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 says. Musk reserves the right "not to consummate the transaction and his right to terminate the merger agreement," according to the letter.

In a statement, Twitter said it "has and will continue to share information with Mr. Musk to consummate the transaction," and that the company intends to enforce the merger agreement "at the agreed price and terms."

"Prepared to walk away"

The letter from Musk's lawyers is "the strongest signal yet that the Tesla founder is prepared to walk away from the $44 billion deal. The takeover was always destined to be a bumpy ride, and this is a deep pothole to navigate for both sides," Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said in a research note.

Twitter shares fell 3% on Monday before regaining some ground. The fact that the stock didn't lose more value is a sign that investors had doubts about Musk's buyout from the start, Streeter noted.

Musk is also facing a lawsuit from Twitter shareholders who sued the Tesla CEO for driving down the company's stock price.

Last month, Musk said that the deal was "on hold" while he confirmed that the number of bots Twitter said were on the platform was accurate, even getting into a public dispute with Twitter CEO Parag Agrawal — on Twitter. Wall Street broadly interpreted the move as an effort to negotiate a lower price for the deal.

Streeter said that, "given the added volatility which has hit the tech sector since Mr. Musk made his offer, it's highly likely he's after a cheaper price even if Twitter does provide the data requested."

Musk had offered $54.20 a share for the company in April. Since then, the stock market has declined precipitously, dragging down Musk's own wealth, which is largely tied up in Tesla stock. Twitter's shares are down 23% over the past month.

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"Material" effects

Under an acquisition agreement, Musk is on the hook for a $1 billion fee if he fails to acquire Twitter, and experts say he can't unilaterally place the buyout on hold. 

The bot problem is a longtime fixation for Musk. The world's richest person is also one of its most prolific Tweeters, and his name and likeness are often mimicked by fake accounts promoting cryptocurrency scams. Musk appears to think such bots are also a problem for most other Twitter users, as well as advertisers who take out ads on the platform based on how many real people they expect to reach.

The Twitter sale agreement allows Musk to get out of the deal if there is a "material adverse effect" caused by the company. It defines that as a change which negatively affects Twitter's business or financial conditions. Twitter has said all along that it's proceeding with the deal, although it hasn't scheduled a shareholder vote on it.

The letter signed by Musk attorney Mike Ringler points to a June 1 letter from Twitter in which the company said it only has to give information related to closing the sale. Ringler contends that Twitter is obligated to provide data for any reasonable business purpose needed to complete the deal.

It alleges that Musk is entitled to the data about the core of Twitter's business model so he can prepare the transition to his ownership, and that Twitter has to cooperate with Musk's effort to get the financing for the deal, including providing information that's "reasonably requested" by Musk, the letter states.

The letter contends that Musk is not required to explain his rationale for requesting data or submit to "new conditions the company has attempted to impose" on his right to get the numbers.

With reporting by the Associated Press.

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