“While Section 6.4 of the Merger Agreement requires Twitter to provide Mr. Musk and his advisors all data and information that Mr. Musk requests ‘for any reasonable business purpose related to the consummation of the transaction,’ Twitter has not complied with its contractual obligations,” reads the SEC filing dated July 8.
“For nearly two months, Mr. Musk has sought the data and information necessary to ‘make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform.’”
Musk’s lawyers argued that, despite multiple requests from the tech billionaire, Twitter failed to provide information on the pervasiveness of the social media platform’s bot accounts that is “fundamental to Twitter’s business and financial performance” and is “necessary to consummate the transactions contemplated by the Merger Agreement.”
The information on fake and spam accounts on the platform, Musk’s lawyers state, “is needed to ensure Twitter’s satisfaction of the conditions to closing, to facilitate Mr. Musk’s financing and financial planning for the transaction, and to engage in transition planning for the business.”
Additional information Musk has been requesting from Twitter includes the monetizable daily active usage or users (mDAU), Twitter’s process for auditing the inclusion of spam and fake accounts in its mDAU count, the platform’s methods for catching and suspending bot accounts, and materials showing Twitter’s financial condition.
The SEC filing says Musk and his Morgan Stanley advisers have been requesting this information since May 9, but Twitter has “failed to provide much of the data and information” requested.
“Accordingly, for all of these reasons, Mr. Musk hereby exercises X Holdings I, Inc.’s right to terminate the Merger Agreement and abandon the transaction contemplated thereby, and this letter constitutes formal notice of X Holding I, Inc.’s termination of the Merger Agreement pursuant to Section 8.1(d)(i) thereof,” the SEC filing reads. X Holdings is a company Musk formed to fund the purchase of the social media platform.
A Rocky Deal
Musk’s July 8 announcement ended a tumultuous couple of months in which his $44 billion deal with Twitter hit snags over concerns of fake accounts on the platform.
Twitter first announced the deal with Musk in an April 25 news release, saying it had “entered into a definitive agreement to be acquired by an entity wholly owned by Elon Musk, for $54.20 per share in cash in a transaction valued at approximately $44 billion.”
The electric vehicle tycoon later announced on Twitter in May that he was putting the deal on hold until the platform showed the number of bot accounts to be sufficiently low.
“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk wrote in a post on Twitter on May 13.
“You can’t pay the same price for something that is much worse than they claimed. … The more questions I ask, the more my concerns grow,” Musk, in a video call, told audiences at an event hosted by “The All-In Podcast” in May.
After Musk expressed his doubts about Twitter’s bot accounts, Twitter CEO Parag Agrawal responded on the social media platform on May 16. “We suspend over half a million spam accounts every day, usually before any of you even see them on Twitter,” he wrote. “We also lock millions of accounts each week that we suspect may be spam – if they can’t pass human verification challenges (captchas, phone verification, etc).
“Our actual internal estimates for the last four quarters were all well under 5% – based on the methodology outlined above. The error margins on our estimates give us confidence in our public statements each quarter.”
An SEC filing on April 25 shows that upon the termination of the merger, either Twitter or Musk may need to pay a $1 billion breakup fee.
Bret Taylor, chairman of Twitter’s Board of Directors, said on June 8 that Twitter is committed to closing the deal with Musk.
“The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery,” Taylor wrote on Twitter.
Twitter didn’t respond to a request for comment.