What will happen to the Musk-Twitter deal?

Potential buyer Elon Musk is trying to get out of a planned deal, claiming Twitter has a bot problem. But experts say it won’t be that simple

Tesla billionaire Elon Musk has formally and emphatically reiterated his claim that Twitter has a serious bot problem. And he threatened to pull back from the proposed purchase of the business if the social networking site didn’t do more to prove that its users were real people.

But among experts, it’s likely that Musk is only using the bot problem as an excuse to cancel or renegotiate the deal. As conditions on Twitter look better lately, while at the same time markets have plunged in recent weeks.

In a letter to the Securities and Exchange Commission on Monday, Musk said he believed Twitter was breaching the contract by failing to comply with requests for more information on spam and fake user accounts. But behind the scenes, negotiations are progressing, according to those familiar with the matter. As such, both sides meet regularly and exchange information, said two people who had not been authorized to speak publicly.

“What it is trying to do is leave a paper trail,” said Andrew Freedman, partner at Olshan Frome Wolosky law firm and an investment expert. “Its bad luck is that the termination provisions in such take-over agreements do not make the buyer regret his decision.”

Musk believes that 20 percent of users are bots

Last month, Musk said it was postponing the deal until the social media giant proves that less than 5 percent of its users are bots, the company said in a public report. Musk estimates that at least 20 percent of all users have bogus accounts.

However, Twitter says Musk provided information on how it calculates the number of spam accounts on its service. Management told workers that since both sides had signed the merger agreement, Musk couldn’t just put the deal on the shelf. On Monday, the company reiterated it would hold Musk accountable for meeting the terms of a proposed $ 44 billion acquisition. This suggests that those responsible on Twitter also believe he could try to break the deal.

In a statement, the Short Message Service said it shared information with Musk and will continue to share the information. The company believes that the transaction is in the best interest of all shareholders and intends to “complete the transaction and enforce the merger agreement at the agreed price and terms.” Twitter could potentially file a lawsuit against Musk to force him to close the deal if he tries to back out of the acquisition.

“Twitter’s board of directors will finally have enough and will file a lawsuit in Delaware and say,” I want a declaratory ruling that we are not in breach of the contract, and Musk must close the contract, “said Brian Quinn, M&A director, professor at Boston College Law School. “This should be Twitter’s next move.”

Twitter shares fell 1.49 percent on Monday, pointing to rising skepticism that Musk will execute its $ 54.20-a-share offer and that the gap between market expectations and the billionaire’s asking price will widen further. Since Musk announced his takeover plan on April 14, the stock has barely – and briefly – surged above $ 50. The deal was concluded at lightning speed, in part because Musk had refrained from controlling Twitter’s finances beyond publicly available information.

Public dispute over bots

Twitter CEO Parag Agrawal publicly clashed Musk on Twitter for bots. Agrawal said reviewers will investigate “thousands of accounts” to determine the spread of bots, but added that it couldn’t be more specific due to privacy concerns. “Unfortunately, we do not believe that this particular estimate can be made from outside as we have to use both public and private information,” Agrawal wrote in May. In Monday’s documentary, Musk strongly disagreed with such an assessment of the bots.

“Twitter’s recent offer to simply provide additional information on the company’s testing methods, whether written or verbally, is tantamount to rejecting Mr. Musk’s requests for data,” Musk’s attorney wrote in a letter to Twitter’s chief lawyer, Vijaya gadde . “Twitter’s attempt to portray it differently is merely an attempt to obscure and confuse matters. Mr. Musk has made it clear that he does not think the company’s loose testing methods are appropriate, so he needs to do his own analysis. The data he asked for is necessary for this. “

Musk believes that the company’s refusal to provide additional information constitutes “a manifestly material breach of Twitter’s obligations under the Merger Agreement, and Mr. Musk reserves all rights thereunder, including the right to terminate the transaction.” merger agreement.

There was no legal requirement to file such an application, says Jill Fisch, an expert in economics and law at the University of Pennsylvania Carey Law School. “It uses a filing with the SEC to address capital markets with this statement.”

Problem for Musk’s argument: He has already publicly complained about Twitter bots before bidding for the company.

Penalty: $ 1 billion each

“He was obviously aware of the problem – he spoke openly of wanting to solve the problem as an area where he could add value,” says Freedman. “Probably would have to show that Twitter’s actions were reckless or careless” to force the company to renegotiate the deal.

The proposed takeover stipulates that both sides will have to pay $ 1 billion each to break the deal – but Musk can’t just walk away paying the fine. The merger agreement includes a special performance clause that Twitter can use to force Musk to enter into the contract, as originally filed. This could mean that if the deal goes to court, Twitter may request an order for Musk to continue the merger, rather than receiving financial compensation for any breaches of the contract.

Musk’s attorney Mike Ringler of Skadden, Arps, Slate, Meagher & Flom said Twitter must collaborate and provide the required data for Musk to secure the debt financing it needs to complete the deal. The requirement is also complicated by the fact that many financial institutions have issued debt to Musk, Quinn said.

As a Twitter user, Musk may have had a different experience with bots on the platform than most other users. Bots are usually programmed to follow popular users to make them appear more human. Musk, which has 96 million followers, likely attracts a higher proportion of bots than most users.

Most external estimates indicate that the share of Twitter bots exceeds the company’s five percent threshold. Consultant and bot expert Andrea Stropp speculates that bot accounts have made up about 10 percent of the global Twitter audience in the past nine years.

The percentage rises to as much as 20 percent for specific topics, such as cryptocurrencies, and to more than 30 percent for accounts exploring specific conspiracy theories, the researcher said.

“There is a lot of money at stake, so he would have to have a lot of evidence on Twitter to make it worth giving up instead of fighting for the original prize,” said Ann M. Lipton, professor of business law and entrepreneurship at Tulane University New Orleans School of Law. The whole thing could become an “ugly lawsuit.”

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