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Elon Musk Won’t Buy Twitter After All, His Reasoning Why Not is Quite “Interesting”

TECH NEWS – Elon Musk wants to cancel the agreement to buy Twitter.

 

In a letter to the company filed with the Securities and Exchange Commission on Friday, Musk accuses Twitter of making “false and misleading claims” about the prevalence of fake accounts on its platform. According to him, the company has failed to meet its obligations to share the data and information it believes it needs to evaluate its business.

“Twitter sometimes ignored Mr. Musk’s requests, sometimes denied them for seemingly unreasonable reasons, and sometimes claimed to comply while providing Mr. Musk with incomplete or useless information,” Musk’s lawyer Mike Ringler wrote.

Legal experts say that may not be sufficient grounds to terminate the $44 billion deal without imposing a heavy fine on Musk. In response to Musk’s letter, Twitter’s chairman said he intended to sue.

“Twitter’s board of directors is committed to closing the deal at a price and terms agreed upon with Mr. Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in Delaware court,” > – wrote Bret Taylor in a tweet, referring to the Delaware court dealing with corporate disputes.

The billionaire CEO of Tesla and Space X reached an agreement to repurchase the social media company in April. But almost immediately, he started hinting – and then saying outright – that he was “hesitating a lot”. In May, it said the purchase was “waiting” until it examined Twitter’s accounting of how many users were not real people but automated bots or spam. Not long after, Twitter agreed to give him access to the “fire channel” — a real-time stream of the more than 500 million tweets posted daily. The two parties have been sharing information and working to close the deal.

On Thursday, the Washington Post reported that the deal was “in jeopardy” because Musk doubts that Twitter’s spam data can be verified. His team “is expected to take potentially drastic action,” the Post reported.

Bots may not have been the only factor in Musk’s change of heart. Although his offer of $54.20 per share was initially seen as a low price for Twitter, given that it traded above $70 last year, tech stocks and the market as a whole have fallen sharply since he struck the deal.

Twitter shares are trading around $37, down nearly 30% since Musk announced the purchase. In May, Musk even said he might try to negotiate a lower price.

On Thursday, Twitter pointed to a statement the company issued in June that said it “has cooperatively shared and continues to share information” with Musk and that it “intends to close the transaction and execute the merger agreement at the agreed price and terms.” “. The company expected to hold a shareholder vote on the deal by mid-August.

 

Musk has already signed the merger agreement

The two sides have signed a legal agreement for Musk to buy Twitter for $54.20 per share. If either party were to terminate the deal, they would have to pay the other party a $1 billion fee.

In Friday’s letter, Musk cites Twitter’s alleged unwillingness to provide more information about the bots as to why he pulled out of the deal. However, according to legal experts, this would not be an easy process.

Twitter has publicly said for years that it estimates less than 5% of users who see ads daily are spam or bots (but it has warned that the number could be higher).

Musk disputes this, saying up to 20% of accounts could be fake. Although Twitter has given Musk access to public data, he told reporters this week that spam estimates are also based on private data, such as users’ IP addresses, phone numbers, locations and behaviours — and are therefore difficult for outsiders to verify.

Even if Twitter’s 5% figure is wrong, that still may not be enough for Musk to back off or change the terms of the deal without paying a heavy price.

“Merger deals are designed to avoid exactly what Musk is doing, which is to try to find some tiny little fake and then say, ‘Whoops, I can walk away now,'” said Ann Lipton of Tulane, A professor of business law at the university’s law school. “They specifically say things you can’t take back unless it’s not just false, it’s incredibly false, massively false, massively damaging to the company.”

Experts say Twitter has a strong case against Musk
The merger agreement includes a so-called “specific performance clause” that allows Twitter to take Musk to court to force him to purchase while the financing is still in place.

While that may sound risky — and costly — for Twitter, Lipton said the company’s case would be “extreme” and that the board has the leverage to push through the sale. Investors expect to receive $54.20 for their shares. The committee believes the sale deal with Musk is the most valuable part of Twitter right now, according to a person familiar with the deal negotiations.

“They’d much rather get the $54.20 without a court fight, but it’s worth fighting for,” Lipton said. Looking at the company’s current share price, “$54.20 seems like an incredible deal for Twitter. So they could be giving up a lot that would still be worth it in the end if they were to force Musk to shut down.”

 

Musk may try to acquire Twitter at a discount.

 

Still, some Wall Street analysts say Twitter’s board and management should be open to accepting a lower price to avoid a lengthy legal battle.

“There’s no chance it’s going to happen at $54.20,” said CFRA Research analyst Angelo Zino. “Either the offer price will drop by 15-20% to get Elon Musk to re-commit, or he will continue to play the bot card.”

Taking Musk to court could do even more damage to Twitter when uncertainty surrounding the deal and the potential fallout from the billionaire’s ownership role are weighing heavily on the company. Morale is already low, and some employees are leaving. CEO Parag Agrawal has shaken the executive ranks, announcing a hiring freeze and spending cuts.

Going to court “doesn’t bode well for the company’s business prospects and will further increase uncertainty among employees,” Zino said.

According to Lipton, this is also a risk for Musk. “What if you have to buy the company and now somewhat undermine it?”.

Ultimately, he said, the billionaire’s antics, chaotic as they are, seem to have a single purpose: “I don’t think he’s committed to winning. I think he’s committed to not spending $44 billion on Twitter.”

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