Elon Musk on Monday made his most viable threat yet to walk away from a $44bn deal to buy Twitter, accusing the company of committing a “material breach” by failing to disclose the number of bots on the platform.
The letter was published on the website of the US financial watchdog on Monday. He had previously tweeted that the deal “cannot move forward” until the spam and fake account issue had been resolved.
His move is the most concrete to suggest he may be reneging on his deal to purchase the social media platform and is the latest in a long and winding saga between the Tesla executive and the social media platform.
So, how did we get here?
In a April 4 filing to the US Securities and Exchange Commission (SEC), Musk said he had bought up almost $3bn in Twitter shares, making him the platform’s largest shareholder with a 9.2% stake. (Shortly after, Vanguard group surpassed him, now owning 10.3% of the company, and remains the largest shareholder).
On April 5, Twitter announced Musk would be joining the board, a move that was quickly reversed when he declined the appointment and offered to buy the company outright and take it private. His offer was $44bn, or $54.20 a share – 38% higher than Twitter’s 1 April close.
Scrambling, Twitter’s board was poised to implement a “poison pill” policy, which would allow existing shareholders to buy stocks at a substantial discount in order to dilute the holdings of new investors and prevent the sale. However, negotiations between Musk and the board appeared to change that – and a deal was approved on 25 April.
“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” Musk said in a statement posted to Twitter following the purchase.
“Twitter has tremendous potential – I look forward to working with the company and users to unlock it,” he added.
The deal went through – and was unanimously approved by Twitter’s board of directors – but a $44bn purchase does not happen overnight. The purchase has to be approved by regulators and shareholders, and was expected to close in late 2022.
While the mechanics of the deal move forward, investors and analysts are holding their breath. Musk could still pull out at any time – though he would be charged a $1bn “break fee” for doing so. The richest man in the world, Musk is worth $218bn.
Some signs pointed to Musk moving forward with the deal. On 25 May, filings revealed he had secured additional funding for the purchase that would allow him to complete the purchase while incurring minimal personal debt. Those filings revealed he has increased his personal funding of the purchase from $27.3bn to $33.5bn and secured an additional $6.25bn in equity financing.
But tides changed just weeks later when on Monday his lawyers wrote to Twitter accusing it of refusing to provide sufficient information about the number of false users on the service after Musk requested additional numbers on 9 May. It said information provided on 1 June was insufficient.
“Twitter’s latest offer to simply provide additional details regarding the company’s own testing methodologies, whether through written materials or verbal explanations, is tantamount to refusing Mr Musk’s data requests,” said the letter from US law firm Skadden, Arps, Slate, Meagher & Flom .
Such requests lay the groundwork for Musk to back out with fewer penalties, said Anat Alon-Beck, a business law professor at Case Western Reserve University. Merger agreements typically contain certain “covenants” between both parties between the signing of the merger agreement and the closing.
Musk doesn’t have to close unless Twitter “shall have performed or complied, in all material respects, with its obligations required under this Agreement,” the agreement said, according to Alon-Beck. That includes an obligation to “furnish promptly to [Musk] all information concerning the business, properties and personnel of [Twitter] as may reasonably be requested in writing”.
“He can keep asking Twitter for more information about their bot problem,” Alon-Beck said. “Eventually he’ll ask questions they won’t answer, and then he can walk away.”