Musk's Lawyers Claim Twitter Breached Merger Agreement

Lawyer's representing Tesla Inc.'s (TSLA) CEO Elon Musk' released a letter on June 1, 2022 which said that Twitter, Inc. (TWTR) has refused disclose the number of fake and spam accounts on its platform. According to the letter, Twitter only offered Musk its methodology for evaluating accounts but not numbers of fake accounts. As the number of fake accounts determines the actual size of Twitter's userbase, and therefore its value to advertisers, that number is critical to the company's value.

The letter claims that Twitter has been "actively resisting and thwarting his information rights," according to the merger agreement. It goes on to say that this is a "clear material breach," of the agreement.

Musk, who offered to buy Twitter at $54. 20 a share in April 24, 2022 has been requesting information about the spam and fake accounts since May 9. In his tweet last month, Musk observed that fake and spam accounts could be much higher than 20% of total Twitter accounts, significantly higher than the 5% claimed by Twitter. However, despite initial statements by Musk to the contrary, on May 19, Twitter executives declared that there was no talk of renegotiating the deal.

The debate about Twitter's fake accounts is not new. In 2018, Musk noted the high number of fake accounts on Twitter with large numbers of followers and following that made them seem like real accounts.

Musk's conduct during the acquisition has also come under attack. Twitter shareholders filed a class action suit in May accusing Musk of market manipulation. Among the allegations are that Musk delayed legal disclosures regarding his stake in the company and his plan to become a board member of Twitter. In addition, the suit argues that Musk's hesitancy about the deal regarding Twitter's account numbers is merely an attempt to renegotiate the acquisition for a lower price than he'd already agreed to. Musk is also being investigated by the Securities and Exchange Commission (SEC) for failing to file the aforementioned disclosures regarding his acquisition of a significant stake in Twitter.

Whether Musk will walk away from the deal, renegotiate the terms, or go through with the original deal remains to be seen. Twitter's stock trades at just below $40 a share, having given up nearly all the gains made since Musk first announced his stake in the company early in April.