Elon Musk on Monday made his biggest threat yet to walk away from a $44 billion deal to buy Twitter, accusing the company of committing a “material breach” by not disclosing the number of bots on the platform.
The letter was posted on the website of the US Financial Supervisory Authority on Monday. He previously tweeted that the deal “can’t move forward” until the spam fake account issue is resolved.
His most realistic move to suggest he might be backing away from his deal to buy the social media platform is the latest in a long and winding saga between the Tesla CEO and the social media platform.
How did we get here then?
In an April 4 filing with the US Securities and Exchange Commission (SEC), Musk said he had bought nearly $3 billion in Twitter shares, making him the platform’s largest shareholder with a 9.2% stake. (Soon after, he was overtaken by the Vanguard Group, which now owns 10.3% of the company, and remains the largest shareholder.)
On April 5, Twitter announced that Musk would be joining the board of directors, a move that was quickly reversed when he declined the appointment and offered to buy out the entire company and make it private. His bid was $44 billion, or $54.20 a share — 38% higher than Twitter’s April 1 closing.
Scrambling, Twitter’s board was on the verge of implementing a “toxic pill” policy, which would allow existing shareholders to buy shares at a steep discount in order to dilute the holdings of new investors and prevent selling. However, negotiations between Musk and the board appear to have changed that — and the deal was approved on April 25.
“Freedom of speech is the bedrock of a functioning democracy, and Twitter is the digital city arena where matters vital to humanity’s future are discussed,” Musk said in a statement posted to Twitter after 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 the $44 billion purchase didn’t happen overnight. The purchase must be approved by regulators and shareholders, and was expected to close in late 2022.
As the mechanics of the deal move forward, investors and analysts are holding their breath. Musk can still withdraw at any time — although he will be charged a $1 billion “break fee” for doing so. The richest man in the world, Musk, has a net worth of $218 billion.
Some indications are that Musk is moving forward with the deal. On May 25, filings revealed that he had secured additional financing for the purchase that would allow him to complete the purchase while taking on minimal personal debt. Those filings revealed that he increased his personal financing of the purchase from $27.3 billion to $33.5 billion and secured an additional $6.25 billion in equity financing.
But the tide turned only weeks later when his lawyers on Monday wrote to Twitter accusing it of refusing to provide enough information on the number of fake users on the service after Musk requested additional numbers on May 9. She said the information provided on 1 June was insufficient.
“Twitter’s latest offer to provide additional detail regarding the firm’s testing methodologies, whether through written materials or oral explanations, amounts to a denial of Mr Musk’s data requests,” the letter from US law firm Skadden, Arps, Slate, Meagher & Flom said. .
Anat al-Baik, a professor of business law at Case Western Reserve University, said such requests lay the groundwork for Musk to back down with fewer penalties. Merger agreements usually contain certain “covenants” between the two parties between the signing of the merger agreement and the closing.
According to Alon Beck, Musk does not have to shut down unless “Twitter has performed or complied, in all material respects, with its obligations under this Agreement.” This includes a commitment to “immediate furnishing of [Musk] All information related to business, property and employees [Twitter] as may be reasonably required in writing.”
“He can continue to ask Twitter for more information about the bot issue,” Alon-Beck said. “Eventually he’ll ask questions they won’t answer, and then he can leave.”