Because of fake accounts: Twitter deal with Musk is shaking

The lawyers for Elon Musk, the richest man in the world, took to Twitter on Monday in a snappy six-paragraph letter to express their displeasure.

Twitter "actively defended and thwarted Mr. Musk's rights" while he was completing a $44 billion deal to buy the social media service, the lawyers write. The company "denied Mr Musk's data requests" to disclose the number of fake accounts on its platform, they said. This constitutes a "clear material breach" of the agreement, the attorneys said, giving Mr Musk the right to terminate the agreement.

The letter, delivered to Twitter and filed with the Securities and Exchange Commission, further fueled Musk's campaign to end the Blockbuster acquisition. After agreeing to buy Twitter in April, Musk, 50, has repeatedly hinted that he might want to reverse the purchase. Monday's letter contained the most direct words yet about his desire to exit and crystallized his legal argument for the move.

This made it even more uncertain whether Musk would close the deal, even though he waived his right to due diligence when buying Twitter. The letter also raised the prospect of contentious litigation if either side took the matter to court. Should Musk go down this route, under the terms of the deal, Twitter would have the right to sue him to force the acquisition to close, as long as its leverage for the purchase remains intact.

The letter also prompted some eye-rolling. Musk, who runs electric-car maker Tesla and rocket company SpaceX, is known for his volatile nature and has a history of fibbing about his dealings, so his latest move wasn't entirely unexpected.

"This is a move Twitter investors have been preparing for weeks, the moment when Elon Musk's indiscriminate rumination in tweets will be distilled into an official letter to regulators," wrote Susannah Streeter, a senior investment and market analyst Hargreaves Lansdown. "The takeover was always destined to be a bumpy ride."

Behind the scenes, Twitter has been exchanging information with Mr Musk for about a month without a break in communications, said a person familiar with the situation, asking not to be identified as the discussions are confidential. One of Twitter's concerns in sharing the information is Mr Musk's previous statements, both publicly and to Twitter, that he was considering starting a competing social media service, according to two people familiar with the matter. Usually such matters are settled by adding guard rails, such as: B. limiting access to such information, and are negotiated before a deal is completed.

Sean Edgett, Twitter's general counsel, emailed employees Monday morning reaffirming the company's commitment to closing the deal, according to a copy of the memo obtained by the New York Times.

Twitter stock fell 1.5 percent on Monday to close at $39.56, well below the $54.20 per share Mr. Musk was willing to pay for the company.

Mr. Musk reacted not immediately to a request for comment.

Twitter headquarters in San Francisco. The company said it intends to "complete the transaction and enforce the merger agreement at the agreed price and terms." Twitter's headquarters in San Francisco, which it says intends "to complete the transaction and enforce the merger agreement at the agreed price and terms." Credit...Amy Osborne/Agence France-Presse - Getty Images

Mr Musk, who has been complaining about the fake accounts and bots on Twitter for weeks, seems to be getting some hearing from others on the matter. After Musk's letter to Twitter broke Monday, Texas Attorney General Ken Paxton said he was launching an investigation into the company "because it may be misleading Texans about the number of its 'bot' users." his office in a statement.

Twitter declined to comment on Mr Paxton's investigation.

When Musk agreed to buy Twitter in April, he said he wanted to privatize the company, allow more free speech on the platform, and improve the service's features. But in recent weeks, the stock market has plummeted due to fears of inflation, the war in Ukraine and problems in the supply chain.

The downturn has impacted the stocks of companies like Tesla, which is the main source of Mr Musk's wealth. The turmoil has also rattled credit markets, potentially making it harder for banks to sell the debt typically raised to finance a takeover. Analysts have speculated that these factors make Musk feel guilty about spending $44 billion on the social media company.

In recent weeks, Musk has threatened to put the Twitter business on hold over the number of fake accounts." Last month, he tweeted that "business cannot move forward" until Twitter presents "evidence" that those accounts accounts for less than 5 percent of users, which the company has repeatedly claimed.He also made similar comments at a conference in Miami, suggesting he may be trying to lay the groundwork for an overhaul of the agreement

, Musk seemed to be arguing that Twitter has undergone a "material adverse change" that will have a significant impact on the business, which could allow it to terminate the contract. However, legal experts have questioned the validity of this argument, especially since Twitter has long disclosed that about 5 percent of its users are fake accounts However,

Mr Musk's letter on Monday represented a new strategy Simply saying the billionaire doesn't believe Twitter's numbers, his lawyers said in the letter that the company is breaching its obligations by not giving Mr Musk the information he believes is important to the business - in this case, how it calculates the number of bots.

The lawyers wrote that Mr Musk had "repeatedly" requested more information about how Twitter measures spam and fake accounts on its platform and that he "made it clear that he did not believe the company's lax testing methods were appropriate and therefore his own analysis must be carried out".

The original offer. Musk made an unsolicited offer of more than $40 billion for the influential social network, stating that he wants Twitter to be a private company and that he wants people on the service to be able to speak more freely.

The answer. Twitter's board of directors countered Mr Musk's offer with a defense mechanism known as a "poison pill." This time-tested corporate tactic makes a company less palatable to a potential acquirer by making shares more expensive to buy above a certain threshold.

Ensuring funding. Though his initial bid was few in detail and met with skepticism from Wall Street, Musk quickly secured $46.5 billion in pledges to fund his bid, putting pressure on the Twitter board to take its proposals seriously gain weight.

reach an agreement. With funding secured, Twitter's board of directors met with Musk to discuss his offer. The two sides soon came to an agreement, and the social media company agreed to sell itself for $54.20 per share.

Will the deal go through? In order for the purchase to go through, shareholders must vote and regulators must first review the offer. The company is expected to come under intense scrutiny, and questions remain about Musk's plans for the company, especially after he threatened to go out of business if Twitter didn't provide more information on how the number was told of fake accounts.

They said Twitter's cooperation was necessary to secure the debt financing that the banks have pledged to fund the deal. Morgan Stanley and other lenders have pledged $13 billion in debt to fund Musk's acquisition. These commitments are subject to the same legal contracts as the deal.

"What he's actually doing is a much more adroit attempt to get out of the merger agreement," said Ann Lipton, a professor of corporate governance at Tulane Law School. "If Twitter does block requests for information, and those requests for information were necessary or reasonable for Musk to obtain his funding - which he claims in this letter - then that would potentially be a violation allowing Musk to opt out.

Twitter, in turn, could argue that "It doesn't have the information Musk requested or that it isn't necessary to close the deal," she said.

"The deal is expected to close by Oct. 24. If it doesn't go through by then, either side can to withdraw from the deal. Should the transaction be delayed due to regulatory approvals, Musk and Twitter would have another six months to complete it. The agreement includes a $1 billion transfer fee for both parties, subject to certain conditions.

In many ways, the agreement seems otherwise to go according to plan, Twitter announced last week that it has received approval for sale from the Federal Trade Commission.

As for funding, Musk announced in a report last month that he had increased his personal cash commitment to the deal and canceled a proposed loan against Tesla stock. He also said he's in talks with other Twitter shareholders, including co-founder Jack Dorsey, about transferring their existing shares into the company after it goes into private ownership.

For Twitter, the conclusion of the deal is of existential importance. The company is struggling to deliver consistent financial results and grow its user base.

Parag Agrawal, the head of Twitter, cut the company's spending and stopped hiring last month. Since taking office in November, he has shaken up the company's leadership and plans further changes. He has also urged staff to stay the course.

"I know that we have a period of uncertainty behind us," he said recently at a company meeting. "We are now concentrating on our work again."