Elon Musk is now saying that Twitter’s lack of information about its user base represents a “material breach” of the terms of the merger, according to a Securities and Exchange Commission (SEC) filing. The news sent shares of Twitter tumbling 3.9% on the morning of June 6.
By Yaёl Bizouati-Kennedy
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In a letter to Twitter filed with the SEC on June 6, Musk’s lawyers write that “based on Twitter’s behavior to date, and the company’s latest correspondence in particular, Mr. Musk believes the company is actively resisting and thwarting his information rights (and the company’s corresponding obligations) under the merger agreement. This is a clear material breach of Twitter’s obligations under 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 lawyers also wrote that 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.”
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As such, they argue that he must have a complete and accurate understanding of the very core of Twitter’s business model — its active user base and that Musk is not required to explain his rationale for requesting the data.
“At this point, Mr. Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover,” the lawyers added. “If Twitter is confident in its publicized spam estimates, Mr. Musk does not understand the company’s reluctance to allow Mr. Musk to independently evaluate those estimates.”
Wedbush Securities analyst Dan Ives tweeted that Musk’s latest move “speaks to our thesis over past few weeks that spam/bot issue was going to be the ‘material breach’ cited by Musk to try to get out of TWTR deal. $1 billion breakup fee; Twitter Board will fight this clearly. Help remove a major overhang on Tesla; Twitter stock be under pressure.”
“I’m worried that Twitter has a disincentive to reduce spam, as it reduces perceived daily users,” Musk tweeted on May 21. When asked whether Twitter had gotten back to him on the bots number discrepancy, he added: “No, they still refuse to explain how they calculate that 5% of daily users are fake/spam! Very suspicious.”
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Twitter shares have been down since the $44 billion acquisition was announced in April — they are down 22.5% in the past month, and down 9.6% year-to-date.
