Billionaire Elon Musk's Twitter takeover looked almost as certain as his tweets upsetting millions of overly sensitive social media users. Thanks to concerns over the prevalence of spam-bot accounts on the website, what appeared as a victory for digital free speech is now coming into question. Will Musk's acquisition be tossed into the trash receptacle? And, if so, will this result in a bitter legal battle over the $1 billion termination fee? In the end, somebody’s reputation will take a hit once the deal is finalized.
Sorry, Please Hold
A June 6 letter from Musk's legal team to Twitter accuses the social media platform of not providing him information on spam-bot accounts. It further noted that Musk has repeatedly requested the data for nearly a month so he could determine how many of the social network's 229 million accounts are fake.
In a Securities and Exchange Commission (SEC) filing, the letter noted that the company has offered only to give him details about the corporation's testing methods, which lawyers argue is "tantamount to refusing Mr. Musk's data request." In addition, the billionaire CEO's legal representatives aver that Twitter must cooperate with Musk's requests to ensure financing for the acquisition and facilitate the transition to his ownership.
"This is a clear material breach of Twitter's obligations under the merger agreement and 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 stated. “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.”
Musk has routinely purported that he wants the numbers so he can independently verify Twitter's flawed methodologies. As a result, based on the social media entity’s response, Musk ostensibly believes the tech firm is blocking his information rights under the merger agreement from April.
However, CEO Parag Agrawal has repeatedly noted that the company has continually estimated that fewer than 5% of Twitter accounts are bogus. Although Twitter has given its bot estimates to the Securities and Exchange Commission (SEC) for many years, the digital portal also cautioned that the projections could be too low.
For weeks, Musk has threatened to walk away from the $44 billion deal. For example, in a May 13 tweet, Musk informed his 91 million followers that his planned purchase of Twitter was "temporarily on hold" pending details on fake and spam accounts. In a follow-up tweet, Musk wrote that he was "still committed to acquisition." Musk later confirmed that his team would perform "a random sample of 100 followers" and urged others to conduct the same test and "see what they discover." Musk would write soon after: "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."
A Billion-Dollar Battle in the Making?
A chief component of the merger agreement is the $1 billion termination fee. Should either side walk away from the deal, the party would be obliged to pay a $1 billion breakup fee. There also has been speculation that Musk is trying to lower the $44 billion proposal with the notion that he offered too much for the company. Whether Twitter will accept lower a bid or not remains to be seen, but there is a desire to sell the San Francisco-based company, says Aron Solomon, the chief legal analyst at Esquire Digital.
Elon Musk (Photo by Alexi Rosenfeld/GC Images)
"If things really start falling apart with Elon Musk, Twitter will find another buyer. The appetite to sell the company is there and that doesn’t go away quickly," Solomon told Liberty Nation. "Just like Elon Musk seems to be craving all of this current attention, I think having daily, if not hourly, focus on Twitter as well is ultimately good for the company and can help it think of a new business model."
Despite all the background noise that has transpired in recent weeks, the Twitter board of directors will continue to hold Musk to notable standards.
"It’s the position of the Twitter board they are absolutely going to hold the Elon Musk to specific performance," he added. "In other words, make sure that he goes through with his deal at the price he offered, this is for reasons to maximize shareholder value rather than the survival of the business."
The other development in this saga is a separate SEC investigation into Musk and why he did not submit a schedule 13G form that confirmed his intention to acquire a substantial stake in the firm.
$54.20 No More?
Traders are sending signals that they no longer think the deal will be finalized and give shareholders $54.20 per share. As a result, the stock has erased all of its post-Musk gains, trading below $40. But if investors have faith that the Dogefather and TechnoKing will complete his purchase of the website, the slide "may have created an opportunity for institutional investors to get into the game or increase their stake as Musk’s action has created merger arbitrage opportunities with significant upside," says Ali Mogharabi, a senior equity analyst at Morningstar, in a research note. Twitter stock to the moon?
