Twitter deal in jeopardy over material breach as Musk threatens to cancel in new development

Musk seeking information on spam bots and fake accounts from Twitter

Twitter deal in jeopardy over material breach as Musk threatens to cancel in new development

Twitter deal in jeopardy over material breach as Musk threatens to cancel in new development

In yet another public warning to Twitter, Elon Musk stated that he may walk away from the USD 44 billion deal to buy the company if it failed to provide data on spam and fake accounts on the platform that he was seeking.

Although this was not the first time that Musk had warned that his acquisition of Twitter may not see fruition, the warning marked an escalation since it was delivered in a letter from Musk’s lawyers to Twitter’s Chief Legal Officer Vijaya Gadde. In the letter, Musk warned that Twitter was in material breach of its deal obligations. 

The constant threats by Musk have caused many technology stocks to plunge, adding to the concerns of an economic slowdown and higher interest rates prompted by skyrocketing inflation.

Investors are of the opinion that Musk will either walk away from the deal, or convince Twitter to agree to a lower deal price. Shares of the company ended down by 1.5 percent on Monday, to USD39.27 a share, a huge drop from the agreed deal price of USD52.20 per share.

Reiterating Musk’s request for details on bot accounts on the platform, Musk’s lawyers said that he reserved all rights to terminate the deal since the company was in a clear material breach of its obligations by not providing the requisite information.

In a statement, Twitter said that it has and will continue to share information with Musk to finalise the transaction in accordance with the terms of the agreement. The company also said that it intends to enforce the completion of the deal on the mutually agreed terms.

Musk, a self-proclaimed supporter of free speech, has stated that one of his main priorities will be to remove spam bots from the platform.

Last month, Musk had tweeted that the deal with Twitter was temporarily on hold, and that the will not move forward with the deal unless the company could prove that spam bots constitute less than 5 percent of its user base. In earlier statements, Musk has said that he believed that spam bots constitute at least 20 percent of Twitter’s user base.

Independent researchers have projected that 9% to 15% of the millions of Twitter profiles may be spam bots or fake accounts.

Musk said that he requires the data in order to conduct an independent analysis of Twitter users since he did not believe in what he called lax testing methodologies of the company. In response to this, Twitter stated that it stood by its projections, and also added that they cannot provide proprietary information on how it deduced them.

Legal experts have opined that the disclaimers used by Twitter over its projections on spam bots would protect the company from potential lawsuits, whether from Musk or company shareholders, regarding the accuracy of its regulatory disclosures.

In the event that Twitters disclosures are not accurate, Musk would have to prove that the company was seeking to willfully mislead him, which is a high legal threshold to cross.

Musk seeking lower price for Twitter

Proprietary trader at Bright Trading LLC, Dennis Dick, observed that Musk was trying everything in his power to get a reduced price for the deal, and chances of his success were high.

Even if the law works in favor of Twittter, Musk may still be able to negotiate the deal, or even walk away from it. Observers say that any litigation is likely to be protracted and the company may decide that it is more feasible to negotiate a lower price or receive compensation from Musk if he abandons the deal.

According to the agreement, Musk will be liable to pay Twitter USD 1 billion as compensation if he abandons the deal due to failure of debt financing or regulatory blocks. This compensation amount represents a small fraction of Musk’s fortune which has been valued by Forbes at USD 219 billion.

Antitrust regulators in the US decided to end further scrutiny of the Twitter acquisition, indicating that the deal would not be held back by regulatory blocks. The European Union is still in the process of reviewing the deal.

A spokesperson for Twitter stated that the company reaffirmed its filings with the US Securities and Exchange Commission.

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