Texas attorney general announces investigation into prevalence of ‘bots’ on Twitter, while Twitter says it will ‘enforce’ the merger agreement — in which Musk waived due diligence — at the agreed-upon price and terms
Shares of Twitter Inc. fell Monday after Elon Musk said he could terminate the merger deal if the social-media company continues, in his view, to refuse to provide the information he requested regarding spam and fake accounts.
Musk said in a letter to Twitter, via the law firm Skadden, Arps, Slate, Meagher & Flom LLP, that Twitter TWTR, -1.49% has repeatedly refused to provide information to help him evaluate spam and fake accounts on Twitter’s platform. The Tesla Inc. TSLA, +1.60% chief executive said Twitter’s offer to provide details on its testing methodologies is the same as refusing his requests.
Keep in mind that Musk had waived his right to perform due diligence on Twitter before agreeing to the merger’s terms.
“Mr. Musk has made it clear that he does not believe the company’s lax testing methodologies are adequate so he must conduct his own analysis,” the letter said.
Twitter responded to Musk’s letter, saying in an emailed statement to MarketWatch that it “has and will continue to cooperatively share information” with Musk.
Musk said that under terms of the merger deal Twitter is obligated to provide information for “any reasonable business purpose” related to completing the deal. In addition, Musk said, Twitter must also cooperate with his efforts to secure the financing needed to complete the deal, which includes providing information he “reasonably” requests.
“As Twitter’s prospective owner, Mr. Musk is clearly entitled to the requested data to enable him to prepare for transitioning Twitter’s business to his ownership and to facilitate his transaction financing,” Musk’s letter said. “To do both, he must have a complete and accurate understanding of the very core of Twitter’s business model — its active user base.”
Therefore, he believes Twitter’s refusal to provide the information he requested is “a clear material breach” of 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 said.
Musk said Twitter’s continued refusal to provide the information is causing “further suspicion” that Twitter is concerned about what Musk might find.
Separately, Texas Attorney General Ken Paxton announced Monday afternoon that he is investigating Twitter “for potentially misleading Texans on the number of its ‘bot’ users.”
“I have a duty to protect Texans if Twitter is misrepresenting how many accounts are fake to drive up their revenue,” tweeted Paxton, who had previously launched a state investigation of Twitter in the wake of the Jan. 6, 2021, attack by Trump supporters on the U.S. Capitol, over “the seemingly coordinated de-platforming of the President.” Twitter sued Paxton in return, claiming Paxton, in that 2021 instance, was using powers of the state to pursue political vengeance.
Meanwhile, Twitter said it plans to keep to the current merger agreement, which it has said it believes is in the best interest of its shareholders. “We intend to close the transaction and enforce the merger agreement at the agreed price and terms,” Twitter said in a statement.
Keep in mind that Musk had waived his right to perform due diligence on Twitter before agreeing to the merger’s terms. “Mr. Musk also disclosed that his acquisition proposal was no longer subject to the completion of financing and business due diligence,” Twitter disclosed in a filing detailing the merger agreement.
Twitter’s stock rose 1.6% on Monday, jettisoning earlier losses of as much as 5.6% following its statement of its intent to hold Musk to the deal’s terms. The stock was trading about 28% below the agreed-upon buyout price of $54.20 a share.
CFRA analyst Angelo Zino said he continues to believe Musk is “playing hardball,” as he tries to gain leverage to either lower his bid for Twitter or completely walk away, if he gets cold feet.
“Ultimately, we are finding it increasingly difficult to envision a scenario in which this doesn’t get settled in the courts,” Zino wrote in a note to clients.
Musk’s latest threat comes a little over a week after he disclosed an increase in the amount of cash he will commit to buy Twitter, which at the time appeared to confirm his commitment to the deal. Twitter’s stock had surged 6.4% on the back of that disclosure, and is still trading above where it stood before that rally.
Meanwhile, Tesla’s stock had edged up 0.4% at midday Monday but had been up as much as 4.4% earlier after Musk’s letter was disclosed. Musk’s deal to buy Twitter has been viewed by some investors as distracting Musk from running the electric-vehicle maker, and could potentially prompt him to significantly reduce his Tesla equity stake.
Twitter’s stock has rallied 17.6% over the past three months, while Tesla shares have shed 15.7% and the S&P 500 index SPX, +0.31% has lost 4.9%.