Time to play “Let’s Make a Deal,” or time to escape a deal? With Elon Musk, no one’s ever quite sure, but the Twitter buyout has had a lot of whiplash even for the world’s wealthiest mogul. Capping off a four-week fight over the true percentage of bot content on the platform, Musk’s attorneys warned the current Twitter board that Musk would terminate the deal if Twitter continued to stonewall him on that data:
Elon Musk is threatening to end his $44 billion agreement to buy Twitter, accusing the company of refusing to give him information about its spam bot accounts.
Lawyers for the Tesla and SpaceX CEO made the threat in a letter to Twitter dated Monday that the social platform included in a filing with the Securities and Exchange Commission.
The letter says Musk has repeatedly asked for the information since May 9, about a month after his offer to buy the company, so he could evaluate how many of the company’s 229 million accounts are fake.
Ahem. Isn’t that something that Musk should have investigated before making his tender offer of $54 a share? It’s certainly material to the company’s value, but that argument only makes the due-diligence failure more obvious. And it’s not as if Twitter claimed that its estimates were hard maximums, either, a point they made last month when Musk first started complaining about it:
The details were published in Twitter’s proxy statement, which outlines what shareholders need to know to vote on the deal.
It shows Musk negotiated the Twitter deal over the weekend of April 23 and 24 without carrying out any due diligence.
And painted a picture of Musk in a rush to clinch a deal with his “best and final” offer.
Since signing the deal on April 25, Musk has questioned the accuracy of Twitter’s public filings that say less than 5% of its user base were spam accounts, claiming it was at least 20%.
Twitter has, however, stated in its filings that the number could be higher than its estimate.
Independent researchers have projected that 9% to 15% of the millions of Twitter profiles are bots.
Neither Musk nor his attorneys have explained why he didn’t demand a better accounting of this measure prior to making the buyout bid. As the single largest shareholder of Twitter at that time, Musk could have demanded a full accounting before any bid; if Twitter failed to comply, Musk could have forced the issue into court. Even as a bidder, Musk could have made his “best and final offer” contingent on an outside estimate of the bot content on the platform.
And yet here we are, in what looks like a way to get out of the deal without coughing up the billion-dollar cancellation fee. Musk’s attorneys are trying to paint this as a “material breach” that will negate the buyout agreement:
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 wrote on Twitter last month 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. Some analysts interpreted the move as a negotiation tactic for a lower price.
But is this a “material breach” at all? At least from Twitter’s proxy statement, the deal appears to be an “as is” purchase. Musk apparently explicitly waived any more due-diligence prerequisites, which might have been why the Twitter board found the bid attractive enough to recommend to shareholders. It’s a little late for buyer’s remorse — if that’s what this truly is.
However, this could still be an attempt to force Twitter to accept a lower price for its shares. Right now, Twitter’s trading at $38.45, well below Musk’s current $54 bid. Volume is still relatively low considering the gap between current price and the buyout bid, which means that investors either think Musk won’t go through with it or that the eventual price will be significantly lower. Twitter can hold out and collect a billion dollars from Musk, but that will leave them with disappointed shareholders — many of whom might have the same questions about Twitter’s real valuation.
If Musk isn’t looking for an escape hatch, then the board may have no real choice but to renegotiate the price. If not, both sides will be left with considerable egg on their faces. Stay tuned.