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Elon Musk says he won’t buy Twitter
By: Shannon Bond | NPR
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WASHINGTON, D.C. (NPR) — Elon Musk wants to break off his agreement to buy Twitter.
In a letter to the company, filed Friday with the Securities and Exchange Commission, Musk accuses Twitter of making “false and misleading representations” about the prevalence of fake accounts on its platform. He says the company has not complied with its obligations to share data and information that he says he needs to evaluate its business.
“Sometimes Twitter has ignored Mr. Musk’s requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information,” Musk’s lawyer, Mike Ringler, wrote.
Legal experts say this may not be sufficient grounds to break off the $44 billion deal without Musk being on the hook for a hefty fine. In response to Musk’s letter, the chair of Twitter’s board said it planned to sue.
“The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery,” said Bret Taylor in a tweet, referring to a Delaware court that handles corporate disputes.
The billionaire CEO of Tesla and Space X struck a deal to buy the social media company back in April. But almost immediately, he started hinting – and then saying outright – that he had cold feet. In May he declared the purchase was “on hold” while he looked into Twitter’s accounting of how many users are not real people, but automated bots or spam. Soon after, Twitter agreed to give him access to its “firehose” – a real-time stream of more than 500 million tweets posted every day. Since then, the two sides have been sharing information and working to close the transaction.
On Thursday, the Washington Post reported the deal was “in jeopardy” because Musk doubts that Twitter’s spam figures are verifiable. His team was “expected to take potentially drastic action,” the Post reported.
Bots may not be the only factor in Musk’s change of heart. While his offer of $54.20 a share was initially seen as a lowball price for Twitter, given that it was trading above $70 last year, tech stocks and the market as a whole have fallen sharply since he struck the deal.
Twitter shares are now trading around $37, down nearly 30% from the day Musk’s purchase was announced. In May, Musk even said he might seek to negotiate a lower price.
On Thursday, Twitter had pointed to a statement the company issued in June saying it “has and will continue to cooperatively share information” with Musk and that “we intend to close the transaction and enforce the merger agreement at the agreed price and terms.” The company was expecting to hold a shareholder vote on the deal by mid-August.
Musk signed a merger agreement
The two sides signed a legal agreement that Musk would buy Twitter for $54.20 a share. If either side broke off the deal, they could be on the hook to pay a $1 billion fee to the other party.
In his letter on Friday, Musk cites Twitter’s alleged refusal to turn over more information about bots as grounds to abandon the deal. But legal experts say that would be an uphill battle.
For years, Twitter has publicly said it estimates less than 5% of daily users who see ads are spam or bots (but has also cautioned the number could be higher).
Musk disputes this, saying he believes as many as 20% of accounts may be fake. While Twitter gave Musk access to its firehose of public data, it told reporters this week its spam estimates are also based on private data, such as users’ IP addresses, phone numbers, locations and behavior – and are therefore difficult for outsiders to verify.
Even if Twitter’s 5% figure is incorrect, that still might not be enough to let Musk back out or change the terms of the deal without paying a hefty price.
“Merger agreements are drafted to avoid exactly what Musk is doing, which is try to find some tiny little false thing and then say, ‘Whoops, I get to walk away now,” said Ann Lipton, a business law professor at Tulane University Law School. “They specifically say things like, you can’t back out unless it’s not just false, but incredibly false, hugely false, massively damaging to the company.”
Twitter has a strong case against Musk, say experts
The merger agreement includes what’s known as a “specific performance clause,” which says Twitter can take Musk to court to force him to go through with the purchase as long as he still has financing in place.
While that may sound risky – and costly – for Twitter, Lipton says the company’s case would be “very strong,” and its board has compelling incentives to see the sale through. Investors are expecting to receive $54.20 a piece for their shares. The board’s view, according to a person familiar with the deal talks, is that the sale agreement with Musk is the most valuable part of Twitter right now.
“They would much rather have the $54.20 without a court fight, but it’s worth fighting over,” Lipton said. Given the company’s current share price, “$54.20 seems like an unbelievable deal for Twitter. So there is a lot that they could sacrifice that would still make it worth it in the end if they got to force Musk to close.”
Musk might try to get 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 getting done at $54.20,” said Angelo Zino, analyst at CFRA Research. “You’re either going to see a 15 to 20% drop in the offer price to get Elon Musk engaged again, or he continues to play the bot card.”
Taking Musk to court could be even more damaging to Twitter at a time when uncertainty over the deal and what the billionaire’s ownership might mean are weighing heavily on the company. Morale is already low and some employees are leaving. CEO Parag Agrawal has shaken up his executive ranks and announced a hiring freeze and spending cuts.
Going to court “doesn’t bode well for the business prospects of your company, and it further adds uncertainty to the employee base,” Zino said.
That’s also a risk for Musk, Lipton said. “What if he has to buy the company and now he’s kind of undermined it at the same time?”
Ultimately, she said, the billionaire’s antics, however chaotic, appear to have a single goal: “I don’t think he’s committed to winning. I think he’s committing to not spending $44 billion on Twitter.”
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Transcript :
AILSA CHANG, HOST:
Well, it turns out Elon Musk says he does not want to buy Twitter after all. The billionaire has written a letter to the social media company, accusing it of not being upfront about the amount of fake and spam accounts, or bots, on the platform. He says the company has refused to give him the information that he says he needs. But can he really scuttle the $44 billion deal?
Well, to help us answer that question, we’re joined now by NPR tech correspondent Shannon Bond. Hi, Shannon.
SHANNON BOND, BYLINE: Hi, Ailsa.
CHANG: OK. So what exactly did Elon Musk say in this letter to Twitter today?
BOND: Well, he accused Twitter of making, quote, “false and misleading representations.” And what he’s referring to is this ongoing dispute you mentioned that he’s had with the company over fake accounts. So Twitter has long said that less than 5% of accounts on the platform are fake or spam. But Musk thinks that number is much higher, and he says Twitter has refused to give him the data and information that he says he needs to verify the company’s estimates. And so in this letter today, he says this is grounds for calling the whole thing off.
CHANG: Wow. I mean, it seems kind of weird that Musk would break off this huge deal based on the number of bots. Like, is there more to it than that in real life?
BOND: Yeah. And, I mean, almost since this deal was announced back in April, when – remember, one of the things he said about buying Twitter was that he wanted to clean up the spam and bot problem.
CHANG: Yeah.
BOND: Musk has hinted, if not just come out and said outright, that he has cold feet about this deal. And bots really are only part of it. It seems pretty clear at this point. Back in April, Musk agreed to pay $54.20 a share for Twitter, and that seemed like maybe a low price at the time. Twitter had been trading much higher just a year ago. But since then, the market has tanked. Tech stocks, including Twitter, are way down, and that has fueled speculation that Musk may feel like he’s now overpaying for the company. And he even said back in May he might try to cut the price he’s going to pay. But what he’s made clear today is he doesn’t want to buy Twitter at all.
CHANG: So what’s the response from Twitter?
BOND: Well, the company’s board chair, Bret Taylor, tweeted almost right away that Twitter is committed to closing the deal on the terms and at the price agreed and that it is going to take Musk to court to do so. And legal experts I spoke with say Twitter has a strong case. The legal agreement Musk signed says Twitter can take Musk to court – they can sue him to try to force him to complete the deal as long as his financing is in place. There’s also a provision in this agreement calling for Musk to pay a billion-dollar breakup fee…
CHANG: (Laughter).
BOND: …To Twitter if he walks away, you know, without a very sort of limited amount of reasons. But the experts I spoke to said, look, he could be on the hook for a lot more money if a court finds that actually he’s the one that’s breached the obligations…
CHANG: Yeah.
BOND: …In this agreement.
CHANG: Yeah. OK. So legally speaking, it sounds like Twitter has a good case. But what does this kind of news do to the company?
BOND: Yeah. I mean, it is going to be a protracted battle if it does go to court. It would go to court in Delaware. And, you know, that’s just going to create a lot of uncertainty for the company and for employees who are already feeling very uncertain. You know, there’s this big cloud hanging over with this – all of the antics around this deal, all of the uncertainty. You know, there’s a hiring freeze in place. There are spending cuts. The CEO has already shaken up the top ranks. Employees are leaving. And I think a lengthy, protracted, expensive legal battle – even if Twitter prevails – you know, might leave the company even more damaged than it was to begin with. And so there are some real questions here about, you know, whether or not Musk ends up owning the company, what is the state Twitter is left in after this entire saga concludes?
CHANG: Yeah. That is NPR’s Shannon Bond. Thank you so much, Shannon.
BOND: Thanks, Ailsa. Transcript provided by NPR, Copyright NPR.