After weeks of disputes and delays, it looks like the person least excited about the Elon Musk–Twitter acquisition is Elon Musk himself.
Ever since he clinched the deal to buy Twitter for $44 billion in late April, Musk has thrown doubt over the takeover with a number of tweets and accusations, mainly directed at Twitter’s alleged unwillingness to disclose the number of fake accounts on its service.
In light of his concerns, Musk in May issued thinly veiled threats that he might lower his acquisition price and that his offer was “on hold.” But the centibillionaire seems to have now escalated the feud.
In a Monday filing with the Securities and Exchange Commission, Musk’s lawyers claimed that Twitter is either mischaracterizing or refusing to provide the data to satisfy his questions regarding the number of spam and bot accounts on the platform. Last month, he said he wouldn’t move forward with the deal unless Twitter could prove that bots make up less than 5% of its accounts.
In Monday’s regulator filing, Musk’s lawyers accused Twitter of “actively resisting and thwarting his information rights (and the company’s corresponding obligations) under the merger agreement.” The assertion could pave the way for Musk to forgo paying the agreed-upon acquisition price, and even terminate the deal altogether.
Musk, who recently announced that he would switch his allegiance to the Republican Party, has already received political support in his feud with Twitter over bot accounts. On Monday, Texas Attorney General Ken Paxton announced an investigation into Twitter for potentially falsely reporting the number of bot accounts, citing a possible state law violation. In a press release, Paxton’s office did not mention Musk, but it did allude to the businessman’s claim that fake users could make up 20% or more of Twitter’s accounts.
But walking away from the deal, or even renegotiating it, may not be so simple for Musk. For one, Twitter executives have already told employees that they were not open to renegotiating the agreed-upon price. But even so, Musk has very flimsy legal ground to stand on if he wishes to exit the deal.
Deal or no deal
Musk, it turns out, is probably overpaying for Twitter. He originally proposed paying $54.20 per share, which, after being accepted by Twitter’s board, became legally binding.
But over the past few weeks, most tech stocks have dropped considerably in value.
“You can see the selloff in social media stocks, and he has realized that he overpaid…All these are tactics just to get a reduction in price,” Dennis Dick, a proprietary trader at Bright Trading, told Reuters.
But getting out of the deal won’t be easy for Musk.
“In all contracts, there is an implied obligation of good faith and fair dealing. Musk agrees to use his ‘reasonable best efforts to get the deal done. He can’t torpedo the deal by simply refusing to continue,” Brian Quinn, an associate law professor at Boston College, told the Guardian in May.
Musk has said that high bot numbers would be grounds to invalidate the initial deal. But despite Musk’s heckling of the company, Twitter appears determined to hold him to his word, saying in a May statement that it was “committed to completing the transaction on the agreed price and terms as promptly as practicable.”
If Musk walks away from the deal, he would still be on the hook for a $1 billion termination fee, according to the initial merger agreement. And if he refuses to pay it, Twitter could still, theoretically, take Musk to court.
This is because of a clause in the agreement called “specific performance” that Twitter could activate to sue Musk. A judge could then compel Musk to pay the breakup fee.
It is unclear whether Twitter would be willing to start a drawn-out legal battle, however, and Musk has a history of welcoming protracted court fights. In this scenario, the two could always settle outside court, with Musk either walking away from the deal but owing a large fee to Twitter, or with a deal completed at a lower price.
