Elon Musk accused Twitter of “resisting and thwarting” his right to information about fake accounts on the platform, calling it a “clear material breach” of the terms of their merger agreement in a letter to the company on Monday.
“Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement,” the letter, signed by Skadden attorney Mike Ringler, says.
Twitter shares were down 5% Monday morning.
Musk waived due diligence when he moved to buy the company, seemingly to hasten the acceptance of his bid.
He wrote in a letter to Twitter chairman Bret Taylor on April 24, “As we discussed, $54.20 has been and will remain my best and final offer, period. This is binary – my offer will either be accepted or I will exit my position.”
Twitter announced the company had accepted his offer the next day.
But in the weeks that followed, Musk vocally criticized Twitter during media interviews and on Twitter where he has tens of millions of followers.
He announced in May that his $44 billion purchase of the company would not move forward until he had more information about the number of fake accounts on the service.
On May 17, the Tesla and SpaceX CEO sugggested Twitter had included bad information in its financial filings. He wrote, “My offer was based on Twitter’s SEC filings being accurate. Yesterday, Twitter’s CEO publicly refused to show proof of <5%. This deal cannot move forward until he does.”
He said his team would do a random sampling to calculate the number of fake accounts, but Twitter’s CEO later explained that nonpublic information would be necessary to get an accurate count. Twitter executives told staff there’s “no such thing” as putting the deal on hold as Musk claimed, according to a report in Bloomberg.
Some analysts interpreted Musk’s moves as a negotiation tactic for a lower price.
Musk has complained about scams, bots and fake accounts on Twitter for years. For example, in July 2018, Musk wrote in a pair of tweets: “I want to know who is running the Etherium scambots! Mad skillz …” and later, “Lots of fake accounts on Twitter characterized by high following/follower ratio to make it seem like many real people when it isn’t. Wonder why.”
A proposed class action lawsuit in California, filed in late May, also contends that Musk broke California laws by making investors doubt whether he would complete the deal event after signing a contract to buy Twitter. Shareholders involved in the complaint want Musk to complete the deal as promised, buying Twitter at $54.20 per share.
In Monday’s letter, Musk’s lawyer wrote that the merger agreement requires Twitter to provide the data Musk requested and disputed the company’s alleged claim that it is only required to provide information for the limited purpose of helping to close the transaction.
“To the contrary, Mr. Musk is entitled to seek, and Twitter is obligated to provide, information and data for, inter alia, ‘any reasonable business purpose related to the consummation of the transaction,’” the letter says.
“At this point, Mr. Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover,” it continues.
According to the letter, Musk would agree to ensure anyone reviewing the data would be bound by a non-disclosure agreement and he would not use any “competitively sensitive information” if the deal doesn’t close.
“Twitter has and will continue to cooperatively share information with Mr. Musk to consummate the transaction in accordance with the terms of the merger agreement,” the company said in a statement. “We believe this agreement is in the best interest of all shareholders. We intend to close the transaction and enforce the merger agreement at the agreed price and terms.”
In a separate matter, the SEC is investigating Elon Musk asking why the celebrity CEO did not apparently file a schedule 13G form, announcing his acquisition of a significant stake in Twitter within the required time frame.