Elon Musk threatens to abandon $44 billion Twitter takeover

Tesla chief accuses social network of 'material breach', claiming it failed to provide details of fake accounts. Photo / Getty Images

Elon Musk has threatened to walk away from his US$44 billion ($67b) acquisition of Twitter, accusing the social media company of failing to provide enough information about fake accounts.

Musk has repeatedly criticised Twitter's claim that less than 5 per cent of its daily active users are bots, warning last month that his takeover "cannot move forward" unless the platform provides proof.

In a letter to Twitter's chief legal officer that was disclosed in a regulatory filing on Monday, Musk's lawyers at Skadden, Arps, Slate, Meagher and Flom wrote that the Tesla chief believed the company had "refused to provide the information that [he] has repeatedly requested since May 9".

Twitter insisted it would hold Musk to the original merger agreement, saying it would "continue to co-operatively share information" with the billionaire "to consummate the transaction in accordance with the terms of the merger agreement". A spokesperson added that the company intended to "close the transaction and enforce the merger agreement at the agreed price and terms".

Since Musk and Twitter announced the deal in April, shares in Tesla have fallen sharply, along with those in other high-growth tech companies. Analysts have noted that Musk, because of the market turmoil, may seek an excuse to cut the transaction price or walk away from the deal.

Musk's lawyers said that Twitter was "actively resisting and thwarting his information rights" and this "clear material breach of Twitter's obligations" would allow Musk to "terminate the merger agreement".

The letter suggested that the deal financing from Wall Street banks could be at risk if Twitter did not furnish the information requested. Skadden lawyers wrote that "as Twitter's prospective owner", Musk "is clearly entitled to the requested data to enable him to prepare for transitioning Twitter's business to his ownership and to facilitate his transaction financing".

It will not be straightforward for Musk to withdraw from the deal. A financing failure may be one route, although it would still involve him paying a $1bn termination fee.

Such legal manoeuvres to walk away from transactions rarely work but analysts said Musk might be seeking negotiating leverage to force Twitter into a settlement that would allow him to pay to escape from buying the company.

One top Wall Street lawyer, who is not involved in the deal, said: "It's hard to see how financing sources need this info given Twitter has been able to raise debt and equity to date. But it's something of a self-fulfilling prophecy in that Elon demanding it will make the banks want it."

Twitter's shares closed 1.5 per cent lower on Monday at $39.56, well below Musk's $54.20 offer price.

Twitter chief executive Parag Agrawal last month addressed Musk's fake accounts concerns in a lengthy thread, insisting that the company had shared an "overview" of its estimation process but could not provide the private data that would be necessary to replicate the process externally.

In its letter on Monday, Skadden said that any third parties reviewing the data would adhere to a non-disclosure agreement and that Musk would not retain or otherwise use "competitively sensitive information" if the deal did not close.

"If Twitter is confident in its publicised spam estimates, Mr Musk does not understand the company's reluctance to allow Mr Musk to independently evaluate those estimates," the lawyers added.

Separately on Monday, Texas attorney-general Ken Paxton announced an investigation into Twitter for "potentially false reporting over its fake bot accounts". Twitter has until June 27 to share documents related to "how it calculates and manages its user data and how these numbers relate to Twitter's advertising businesses", Paxton said.

Twitter declined to comment on the investigation.

Written by: Sujeet Indap, Ortenca Aliaj and Tim Bradshaw
© Financial Times