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Elon Musk Threatens to End Twitter Deal Without Information on Spam Accounts

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In a crisp, six-paragraph letter to Twitter on Monday, lawyers for Elon Musk, the world’s richest man, made his displeasure known.

Twitter was “actively resisting and thwarting” Mr. Musk’s rights while he was completing a $44 billion deal to purchase the social media service, the lawyers wrote. The corporate was “refusing Mr. Musk’s data requests” to reveal the number of pretend accounts on its platform, they said. That amounted to a “clear material breach” of the deal, the lawyers continued, giving Mr. Musk the fitting to interrupt off the agreement.

The letter, which was delivered to Twitter and filed with the Securities and Exchange Commission, escalated Mr. Musk’s campaign to terminate the blockbuster acquisition. After striking a deal to purchase Twitter in April, Mr. Musk, 50, has repeatedly suggested that he will probably want to scrap the acquisition. Monday’s letter featured probably the most direct words yet about his desire to drag out and crystallized his legal argument for doing so.

It added one other degree of uncertainty as to if Mr. Musk would complete the deal, although he had waived his rights to do due diligence on Twitter when he bought it. The letter also raised the prospect of a contentious legal battle if one or the opposite side took the matter to court. If Mr. Musk pursued that route, the terms of the deal give Twitter the fitting to sue him to force a completion of the acquisition, if his debt financing for the acquisition stays intact.

The letter also provoked some eye-rolling. Mr. Musk, who leads the electrical carmaker Tesla and the rocket company SpaceX, is famously mercurial and has often winged his wheeling and dealing, making his latest gambit not entirely unexpected.

“This can be a move Twitter investors have for weeks been steeling themselves for, the moment when Elon Musk’s haphazard ruminations in tweets have been distilled into an official letter to regulators,” wrote Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown. “The takeover was at all times destined to be a bumpy ride.”

Twitter said the sale to Mr. Musk remained on the right track. “We intend to shut the transaction and implement the merger agreement on the agreed price and terms,” a spokesman said, adding that the corporate “will proceed to cooperatively share information with Mr. Musk to consummate the transaction.”

Behind the scenes, Twitter has shared information with Mr. Musk for a couple of month with none breakdown in communication, an individual with knowledge of the situation said, requesting anonymity since the discussions were confidential.

Sean Edgett, Twitter’s general counsel, also sent an email to employees on Monday morning reiterating the corporate’s commitment to closing the deal, in response to a duplicate of the memo, which was obtained by The Recent York Times.

Twitter’s stock fell 1.5 percent on Monday to shut at $39.56, far below the $54.20 price per share that Mr. Musk agreed to pay for the corporate.

Mr. Musk didn’t immediately reply to a request for comment.

Mr. Musk, who has complained about Twitter’s fake accounts and bots for weeks, has appeared to get some traction on the problem with others. After Mr. Musk’s letter to Twitter became public on Monday, Ken Paxton, the Texas attorney general, said he was opening an investigation into the corporate “for potentially misleading Texans on the variety of its ‘bot’ users,” his office said in an announcement.

Twitter declined to comment on Mr. Paxton’s investigation.

When Mr. Musk agreed to purchase Twitter in April, he said he desired to take the corporate private, allow more free speech on the platform and improve the service’s features. But within the weeks since, the stock market has plunged over fears of inflation, the war in Ukraine and provide chain challenges.

The downturn has hit shares of firms akin to Tesla, which is Mr. Musk’s essential source of wealth. The turmoil has also rattled credit markets, potentially making it harder for banks to sell the debt that is usually raised to finance a takeover. Analysts have speculated that these aspects have given Mr. Musk buyer’s remorse about spending $44 billion on the social media company.

In recent weeks, Mr. Musk has threatened to place the Twitter deal “on hold” over its number of pretend accounts. Last month, he tweeted that “the deal cannot move forward” until Twitter shows “proof” that these accounts make up lower than 5 percent of its users, as the corporate has repeatedly said. He also made similar remarks at a conference in Miami, indicating that he could also be attempting to lay the groundwork to remodel the deal.

In doing so, Mr. Musk gave the impression to be constructing a case to argue that Twitter had experienced a “material opposed change” that will significantly affect its business, which could allow him to interrupt off the deal. Yet legal experts have questioned the merits of that argument, particularly since Twitter has long disclosed that fake accounts represent about 5 percent of its users.

Mr. Musk’s letter on Monday, though, represented a recent strategy. Reasonably than simply saying that the billionaire didn’t imagine Twitter’s numbers, his lawyers said within the letter that the corporate was breaching its obligations by not giving Mr. Musk the data that he deemed necessary to the deal — on this case, the way it accounts for its variety of bots.

The lawyers wrote that Mr. Musk had “repeatedly” requested more details about how Twitter measured spam and pretend accounts on its platform and that he had “made it clear that he doesn’t imagine the corporate’s lax testing methodologies are adequate so he must conduct his own evaluation.”

How Elon Musk’s Twitter Deal Unfolded

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A blockbuster deal. Elon Musk, the world’s wealthiest man, capped what seemed an improbable attempt by the famously mercurial billionaire to purchase Twitter for roughly $44 billion. Here’s how the deal unfolded:

The initial offer. Mr. Musk made an unsolicited bid price greater than $40 billion for the influential social network, saying that he desired to make Twitter a non-public company and that he wanted people to have the opportunity to talk more freely on the service.

They said Twitter’s cooperation was vital to secure the debt financing that banks have committed to fund the deal. Morgan Stanley and other lenders have committed $13 billion in debt to assist pay for Mr. Musk’s takeover. Those commitments are governed by the identical legal contracts because the deal.

“What he is definitely doing is a rather more clever try to get out of the merger agreement,” said Ann Lipton, a professor of corporate governance at Tulane Law School. “If Twitter were really stonewalling information requests, and people information requests were vital or reasonable for Musk to have the opportunity to get his financing — which is what he’s claiming on this letter — then that will conceivably be a breach that enables Musk to walk away.”

Twitter could, in turn, argue it doesn’t have the data that Mr. Musk is demanding, or that it is just not vital for the deal to shut, she said.

A deal is predicted to shut by Oct. 24. If it doesn’t close by then, either side can walk away. If the transaction is delayed by regulatory approvals at the moment, Mr. Musk and Twitter would have one other six months to shut it. The deal features a $1 billion breakup fee for either side, under certain conditions.

In lots of respects, the agreement otherwise appears on course. Last week, Twitter announced it had received regulatory clearance from the Federal Trade Commission to proceed with its sale.

On the financing front, Mr. Musk disclosed in a filing last month that he had raised his personal money commitment to the deal, canceling a planned loan against shares of Tesla. He also said he was in talks with other Twitter shareholders, including the corporate’s co-founder Jack Dorsey, about rolling their existing shares into the corporate after it’s taken private.

For Twitter, completing the deal is existential. The corporate has faced difficulties delivering consistent financial results and increasing its numbers of users.

Parag Agrawal, Twitter’s chief executive, last month cut the corporate’s discretionary spending and froze recent hiring. Since taking on in November, he has shaken up the corporate’s top ranks and has plans for more changes. He has also asked employees to try to remain the course.

“I do know we’ve been going through a period of uncertainty,” he said at a recent company meeting. “We’re shifting our focus back to our work.”

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