By Jack Davis
Elon Musk says he has abandoned his deal to buy Twitter.
Musk announced in April that he wanted to buy the social media platform. The company first ran from Musk’s embrace but has since supported the deal.
In mid-May, Musk said the deal was on hold pending an effort to determine how many fake accounts Twitter has. Twitter says about 5 percent of its accounts are bots. Musk estimates the figure is much higher. At the time, commentators suggested the tactic might have been part of a plan to lower the $44 billion purchase price or the first step toward Musk backing out of the deal.
Musk announced that he was dropping the deal in a Friday letter to Twitter filed with the Securities and Exchange Commission.
“Mr. Musk is terminating the Merger Agreement because Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect,” the letter said.
“While … the Merger Agreement requires Twitter to provide Mr. Musk and his advisors all data and information that Mr. Musk requests ‘for any reasonable business purpose related to the consummation of the transaction,’ Twitter has not complied with its contractual obligations,” the letter added.
“Sometimes Twitter has ignored Mr. Musk’s requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information.”
According to the letter, Twitter failed to provide information related to the company’s process for auditing spam and fake accounts as well as material regarding Twitter’s financial condition.
The letter pushed back against claims that Musk agreed to buy Twitter without conducting due diligence.
“Despite public speculation on this point, Mr. Musk did not waive his right to review Twitter’s data and information simply because he chose not to seek this data and information before entering into the Merger Agreement,” the letter said.
“In fact, he negotiated access and information rights within the Merger Agreement precisely so that he could review data and information that is important to Twitter’s business before financing and completing the transaction.”
The letter’s bottom line is that Musk, who could face a breakup fee of $1 billion if he is the party to walk away from the deal, is not at fault.
“Twitter is in breach of the Merger Agreement because the Merger Agreement appears to contain materially inaccurate representations,” the letter said, focusing on Twitter’s estimate of its fake accounts.
“Preliminary analysis by Mr. Musk’s advisors of the information provided by Twitter to date causes Mr. Musk to strongly believe that the proportion of false and spam accounts included in the reported [monetizable daily active users] count is wildly higher than 5%.”
The letter added that Musk is examining whether Twitter’s “declining business prospects and financial outlook constitute a Company Material Adverse Effect giving Mr. Musk a separate and distinct basis for terminating the Merger Agreement,” noting layoffs that have recently taken place.
Author: Jack Davis