Elon Musk today sent a letter to Twitter Inc.’s chief legal officer saying he intends to pull out of his $44 billion deal to buy the company.
The move follows a report Thursday that the Tesla Inc. chief executive’s deal to acquire the company was in jeopardy because of issues with spam accounts, causing Twitter’s shares to drop about 4% in late trading Thursday.
The Washington Post, referencing three people familiar with the matter, said Musk’s camp has concluded that Twitter’s figures on spam accounts are not verifiable. The report also said Musk’s team has stopped engaging in certain discussions around funding for the deal, including with a party named as a likely backer.
The new letter, filed with the Securities and Exchange Commission today, appears to act on those assertions. It says Twitter is in breach of several sections of the deal, though it’s not clear that these claims gives him an out. Twitter’s shares dropped 5% in after-hours trading Friday after dropping 5% in the regular session.
Under the terms of the deal, Musk agreed to pay $1 billion if he cancels it. However, Twitter could still try to hold him to the original deal, and its board has given strong indication it would try to do that.
“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 reads.
The letter refers to the issue of spam accounts, saying Twitter hasn’t provided adequate information about them. “Twitter has failed or refused to provide this information,” the letter continues. “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.”
The issue around spam accounts, specifically how many of Twitter’s claimed users are legitimate versus spam bots, was first raised by Musk (pictured) on Twitter on May 13. Musk wrote at the time that he was putting the “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.” At a conference on May 16, Musk again raised his concern about spam accounts, saying that the number of fake accounts or spam bots that plague the platform could affect how much money he’s willing to spend on buying Twitter.
After Musk accused Twitter of being in “clear material breach” of the acquisition agreement on June 6 for not providing data on spam accounts, the company agreed to give Musk access to a “firehose” data stream on June 8. The data included the more than 500 million tweets that Twitter users post per day, including metadata, that could be used to ascertain the number of spam accounts.
The Post said Musk’s team has since raised doubts about the firehouse data provided by Twitter. Team members were said to doubt the spam figures and believe they do not have enough information to evaluate Twitter’s prospects as a business.
Given that the spam data can’t be verified, the report suggested that Musk’s team “is expected to take potentially dramatic action.” Exactly what that action would be is not specified, but one option on the table was that Musk would pull out of the deal, which he now appears to be trying to do.
Twitter had not commented on the letter by mid-afternoon today.
With reporting from Robert Hof
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