Elon Musk announced on Friday that he would drop his $44 billion bid to buy Twitter after the company failed to provide enough information about the number of fake accounts. Twitter immediately hit back, saying it would sue Tesla’s CEO to honor the deal.
The likely unraveling of the acquisition was just the latest twist in the saga between the world’s richest man and one of the most powerful social media platforms, and could herald a titanic legal battle.
Twitter could have demanded a breakup fee of $1 billion, which Musk agreed to pay under the circumstances. Instead, it appears poised to fight to complete the purchase, which the company’s board approved and Chief Executive Officer Parag Agrawal insisted he wants to go through.
In a letter to Twitter’s board, Musk’s lawyer Mike Ringler complained that his client had sought nearly two months of data to gauge the spread of “fake or spam” accounts on the social media platform.
“Twitter has failed or refused to provide this information. At times, Twitter has ignored Mr. Musk’s requests, at times denied them for reasons that appear unwarranted, and at times has claimed compliance by providing Mr. Musk with incomplete or unusable information,” the letter said.
Musk also said the information was fundamental to Twitter’s business and financial performance and was necessary to complete the merger.
In response, Twitter’s board chairman, Brett Taylor, tweeted that the board is “committed to closing the transaction at the price and terms agreed upon” with Musk and “plans to take legal action to enforce the merger agreement.” We are confident it will prevail in the Delaware Court of Chancery.”
Delaware’s trial court often hears business disputes between many corporations, including Twitter, that are incorporated there.
Much of the drama has played out on Twitter, with Musk, who has more than 100 million followers, complaining that the company is failing to live up to its potential as a platform for free speech.
On Friday, Twitter shares fell 5% to $36.81, well below the $54.20 Musk had offered to pay. Meanwhile, Tesla shares rose 2.5% to $752.29.
“This is a catastrophic scenario for Twitter and its board,” Wedbush analyst Dan Ives wrote in a note to investors. He predicted a lengthy legal battle by Twitter to either reinstate the deal or receive a $1 billion breakup fee.
“This has always been a $44 billion Twitter pursuit problem for Musk from the beginning and never made much sense to the Street, now it’s ending (for now) in the Twilight Zone, ending with Twitter’s board up against a wall and many on the street scratching their heads as to what’s next.”
On Thursday, Twitter tried to shed more light on how it counts spam accounts at a briefing with journalists and company executives. Twitter said it removes 1 million spam accounts every day. The accounts represent well under 5% of its active user base each quarter.
To calculate how many accounts are malicious spam, Twitter said it looks at “thousands of accounts” selected at random, using both public and private data such as IP addresses, phone numbers, geolocation and how the account behaves when it’s active , to determine if the account is real.
Last month, Twitter offered Musk access to its “firehose” of raw data on hundreds of millions of daily tweets, according to multiple reports at the time, though neither the company nor Musk confirmed this.
One of the main reasons Musk gave for his interest in taking Twitter private was his belief that he could add value to the business by getting rid of its spambots — the same problem he now cites as a reason to end the deal.
“This whole process has been weird,” said Christopher Bussey, founder of research firm Bot Sentinel, which tracks fake Twitter accounts used for disinformation or harassment. “He knew about this problem. It’s weird that he’s using bots, trolls and fake accounts as a way to get out of the deal.”
On the other hand, Boozy said, the letter from Musk’s legal team makes some valid criticisms of Twitter’s lack of transparency, including its apparent refusal to provide Musk with the same level of internal data it offers some of its big customers.
“It just seems like they’re hiding something,” said Busey, who also believes the number of fake or spam Twitter accounts is higher than the company has reported.
Musk’s lawyer also argued that Twitter breached the agreement when it fired its product revenue leader and general user manager and laid off a third of its talent recruitment team.
The sale agreement, he wrote, requires Twitter to “seek and obtain consent” if it deviates from conducting normal business. Twitter was required to “maintain substantially intact the material components of its current business organization,” the letter said.
Musk’s flirtation with buying Twitter appears to have started in late March. At the time, Twitter said it contacted board members — including co-founder Jack Dorsey — and told them it was buying back shares in the company and was interested in either joining the board, taking Twitter private or creating a competitor.
Then, on April 4, he disclosed in a regulatory filing that he had become the largest shareholder in the company after acquiring a 9 percent stake worth about $3 billion.
Twitter initially offered Musk a seat on its board. But six days later, Agrawal tweeted that Musk would not be joining the board after all. His bid to buy the company came together quickly after that.
Musk had agreed to buy Twitter for $54.20 a share, inserting a reference to “420” marijuana into the bid price. He sold about $8.5 billion worth of shares in Tesla to help finance the purchase, then stepped up commitments of more than $7 billion from a diverse group of investors, including Silicon Valley heavyweights like Oracle co-founder Larry Ellison .
On Twitter, Musk’s proposal was met with confusion and falling morale, especially after Musk publicly criticized one of Twitter’s top lawyers involved in content moderation decisions.
As Twitter executives prepared to move the deal forward, the company froze hiring, halted discretionary spending and fired two top executives. The San Francisco company is also laying off staff, most recently part of its talent acquisition team.
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