Elon Musk Threatens to End Twitter Deal Without Information on Spam Accounts - The New York Times

Mr. Musk, who has complained about Twitter’s fake accounts and bots for weeks, has appeared to get some traction on the issue 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 company “for potentially misleading Texans on the number of its ‘bot’ users,” his office said in a statement.

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

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

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

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

In doing so, Mr. Musk appeared to be building a case to argue that Twitter had experienced a “material adverse change” that would significantly affect its business, which could allow him to break 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 new strategy. Rather than simply saying that the billionaire did not believe Twitter’s numbers, his lawyers said in the letter that the company was breaching its obligations by not giving Mr. Musk the information that he deemed important to the deal — in this case, how it accounts for its number of bots.

The lawyers wrote that Mr. Musk had “repeatedly” requested more information about how Twitter measured spam and fake accounts on its platform and that he had “made it clear that he does not believe the company’s lax testing methodologies are adequate so he must conduct his own analysis.”

Will the deal go through? For the purchase to be completed, shareholders have to vote and regulators have to review the offer first. Scrutiny is likely to be intense and questions remain about Mr. Musk’s plans for the company, especially after he threatened to pull out of the deal if Twitter does not provide more information on how it calculates the number of fake accounts.

They said Twitter’s cooperation was necessary 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 help pay for Mr. Musk’s takeover. Those commitments are governed by the same legal contracts as the deal.

“What he is actually doing is a much more clever attempt 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 those information requests were necessary or reasonable for Musk to be able to get his financing — which is what he’s claiming in this letter — then that would conceivably be a breach that allows Musk to walk away.”

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

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