Elon Musk announced on Friday that he will walk away from his tumultuous $44 billion bid to buy Twitter after the company did not provide enough information about the number of fake accounts. Twitter immediately reacted, saying it would sue Tesla’s CEO to keep the deal.
The likely turn of the takeover was just the latest twist in a saga between the world’s richest man and one of the most influential social media platforms, and could foreshadow a titanic legal battle ahead.
Twitter could have pushed for a $1 billion separation fee that Musk agreed to pay in those circumstances. Instead, it looks ready to fight to complete the purchase, which the company’s board has approved and CEO Parag Agrawal has insisted he wants to consummate.
In a letter to Twitter’s board, Musk’s attorney Mike Ringler complained that his client for nearly two months had been seeking data to judge the case. prevalence of “fake or spam” accounts on the social media platform.
“Twitter failed or refused to provide this information. Twitter has sometimes ignored Musk’s requests, sometimes rejected them for reasons that seem unwarranted, and sometimes claimed to comply by providing incomplete or unusable information to Musk,” the letter read. Musk also said the information is critical to Twitter’s financial and business performance and is needed to complete the merger.
In response, Twitter chairman Bret Taylor tweeted that the board is “committed to closing the transaction at the agreed price and terms” with Musk and “plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Court of Chancery.” The lower court in Delaware often handles commercial disputes between the many corporations, including Twitter, that are incorporated there.
The Twitter Board is committed to closing the transaction at the price and terms agreed with Mr. Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Court of Chancery.
—Bret Taylor (@btaylor) July 8, 2022
Much of the drama surrounding the deal played out on Twitter, with Musk — who has more than 100 million followers — lamenting that the company wasn’t fulfilling its potential as a platform for free speech.
On Friday, Twitter shares fell 5% to $36.81, well below the $54.20 Musk agreed to pay. Tesla shares, meanwhile, rose 2.5% to $752.29. After the market closed and Musk’s letter was published, Twitter’s stock continued to fall while Tesla climbed higher.
“This is a disaster scenario for Twitter and its board,” Wedbush analyst Dan Ives wrote in a note to investors. He predicted a lengthy court fight over Twitter to restore the deal or get the $1 billion breakup fee.
On Thursday, Twitter sought to clarify how it counts spam accounts in a briefing with journalists and company executives. Twitter said it removes 1 million spam accounts a day. Accounts represent well under 5% of its active user base each quarter. To calculate how many accounts are malicious spam, Twitter said it analyzes “thousands of accounts” randomly sampled, using public and private data such as IP addresses, phone numbers, location and account behavior when active, to determine if an account is real. . .
Last month, Twitter offered Musk access to its “fire hose” of raw data on hundreds of millions of daily tweets, according to various reports at the time, though neither the company nor Musk has 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 his spam bots — the same issue he now cites as a reason to end the deal.
“This whole process was bizarre,” said Christopher Bouzy, founder of the research firm Bot Sentinel, which tracks fake Twitter accounts used for disinformation or harassment. “He knew about this problem. It’s weird that he uses bots, trolls and inauthentic accounts as a way to get out of the deal.”
— Forbes (@Forbes) July 8, 2022
On the other hand, Bouzy 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 clients.
“It looks like they’re hiding something,” said Bouzy, who also believes the number of fake or spam accounts on Twitter is higher than what the company reported.
Musk’s attorney also claimed that Twitter broke the deal when it fired two managers and laid off a third of its talent acquisition team. The sale agreement, he wrote, required Twitter to “seek and obtain consent” to deviate from the normal conduct of business. Twitter was required to “preserve substantially intact the material components of its current business organization,” the letter read.
Musk’s flirtation with the Twitter purchase appeared to have started in late March. That’s when Twitter said it reached out to members of its board — including co-founder Jack Dorsey — and told them it was buying stock in the company and was interested in joining the board, taking Twitter private, or starting a competitor.
Then, on April 4, he revealed in a regulatory filing that he had become the company’s largest shareholder after acquiring a 9% 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 council after all.
His attempt to buy the company quickly came to fruition after that.
When Musk agreed to buy Twitter for $54.20 a share, he inserted a “420” marijuana reference into its price. He sold about $8.5 billion worth of Tesla stock to help fund the purchase, then bolstered his commitments of more than $7 billion from a diverse group of investors, including heavyweights from the Valley of Silicon, like Oracle co-founder Larry Ellison.
Within Twitter, Musk’s offer was met with confusion and plummeting morale, especially after Musk publicly criticized one of Twitter’s top lawyers involved in content moderation decisions.
Groups that have opposed the takeover from the start — including those advocating women, minorities and LGBTQ people — cheered Friday’s news.
“Despite what Musk may claim, this deal is not ending because of Twitter bots or spam accounts. This deal is collapsing because of Elon Musk’s own erratic behavior, acceptance of extremists and bad business decisions,” said Angelo Carusone, president of Media Matters, a left-wing nonprofit watchdog group that has criticized the offer of Musk on Twitter.
Musk, he said, “made it clear that he would reverse Twitter’s community standards and safety guidelines, which would turn the platform into a feverish swamp of dangerous conspiracy theories, partisan chicanery and white supremacist radicalization.”