Musk Could Sever Twitter Acquisition Deal Due To “Material Breach”

Elon Musk has threatened to walk away from his $44 billion bid to acquire Twitter Inc if the social media company fails to give the data on spam and phoney accounts that he requires.

This was not the first time Musk had publicly stated that his acquisition of Twitter might not take place. The threat, however, was sent in a letter from Musk’s lawyers to Twitter’s top legal officer, Vijaya Gadde. It accused Twitter of “material breach” of its contract responsibilities.

Musk’s warnings to sever the partnership have coincided with a drop in numerous technology equities, including Tesla Inc, which he leads, amid concerns about an economic slowdown and increased interest rates in the face of soaring inflation.

Twitter shares closed down 1.5 per cent at $39.57 on Monday, a significant discount to the agreed-upon $54.20 per share purchase price, as investors believe Musk will either persuade Twitter to accept a lesser offer price or walk away.

Musk’s attorneys restated his request for information on bot accounts in the letter to Twitter, saying the business was in a “clear substantial breach” of its commitments by failing to provide him with the information.

Twitter responded by stating that it intended to enforce the fulfilment of the agreement on the agreed-upon terms. “Twitter has and will continue to exchange information collaboratively with Musk in order to complete the deal in accordance with the terms of the merger agreement,” the firm said in a statement.

Musk, a self-described free-speech absolutist, has stated that one of his top priorities will be to eliminate “spam bots” off the site.

In mid-May, he announced that the Twitter transaction was “temporarily on hold,” stating that he will not proceed with the offer unless the firm shows proof that spam bots account for less than 5% of its overall users. He has stated that he believes spam bots account for at least 20% of the user population.

According to independent analysts, 9 per cent to 15 per cent of the millions of Twitter profiles could be bots.

Musk stated in his letter that he requires the data to perform his own analysis of Twitter users because he does not trust the company’s “lax testing processes.” Twitter has stated that it stands by its estimates and cannot reveal confidential information on how they are generated.

“He is trying to walk away from the Twitter deal, this is the first shot across the bow,” Wedbush analyst Dan Ives said.

According to legal experts, the disclaimers included in Twitter’s forecasts on spam accounts provide it with some protection against prospective litigation, whether from Musk over the transaction or shareholders over the integrity of the company’s regulatory disclosures.

Even if Twitter’s estimate is incorrect, Musk would have to demonstrate that the San Francisco-based business was attempting to intentionally mislead – a high legal standard.

“It’s fairly obvious that Musk has buyer’s remorse and he is trying whatever to get a reduction in price, and I think he may succeed,” said Dennis Dick, a proprietary trader at Bright Trading LLC.

(Adapted from TheGuardian.com)

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