On Monday, Elon Musk made his most viable threat by pulling out of a $44 billion deal to buy Twitter, accusing the company of committing a “material violation” by not disclosing the number of bots on the platform.
The letter was posted on the US financial watchdog’s website on Monday. He previously tweeted that the deal “cannot go ahead” until the spam and fake account issue is resolved.
His move is the most concrete to suggest he may be reneging on his deal to buy the social media platform and is the latest in a long and winding saga between the Tesla exec and the social media platform.
So how did we get here?
In an April 4 filing with the US Securities and Exchange Commission (SEC), Musk said he bought nearly $3 billion worth of Twitter stock, making him the platform’s largest shareholder with a 9.2% stake. (Shortly later, the Vanguard group overtook him to own 10.3% of the company, and remains the largest shareholder.)
On April 5, Twitter announced that Musk would join the board, a move that was quickly reversed when he declined the appointment and offered to buy the company and make it private. His bid was $44 billion, or $54.20 a share — 38% higher than Twitter’s April 1 close.
Struggling, Twitter’s board was ready to implement a “poison pill” policy that would allow existing shareholders to buy shares at a substantial discount to dilute new investors’ holdings and prevent the sale. However, negotiations between Musk and the board appeared to change that – and a deal was passed on April 25.
“Free speech is the foundation of a functioning democracy, and Twitter is the digital city square where issues vital to the future of humanity are debated,” Musk said in a statement posted to Twitter after the purchase.
“Twitter has tremendous potential – I look forward to working with the company and users to unlock it,” he added.
The deal passed — and was unanimously approved by Twitter’s board of directors — but a $44 billion buyout doesn’t happen overnight. The purchase needs to be approved by regulators and shareholders and is expected to be completed by the end of 2022.
As the mechanics of the business advance, investors and analysts are holding their breath. Musk can still drop out at any time — though he’s charged a $1 billion “interruption fee” for doing so. The richest man in the world, Musk is worth $218 billion.
Some signs pointed to Musk moving forward with the deal. On May 25, records revealed that he had secured additional financing for the purchase that would allow him to complete the purchase with a minimum of personal debt. Those documents revealed that he increased his personal financing of the purchase from $27.3 billion to $33.5 billion and secured an additional $6.25 billion in equity financing.
But the tide turned just weeks later, when on Monday his lawyers wrote to Twitter accusing him of refusing to provide enough information about the number of fake users on the service after Musk requested additional numbers on May 9. He said the information provided on June 1 was insufficient.
“Twitter’s latest offer to simply provide additional details about the company’s own testing methodologies, whether through written materials or verbal explanations, amounts to denying Musk’s requests for data,” the letter from US law firm Skadden said. , Arps, Slate, Meagher & Flom. .
Those orders lay the groundwork for Musk to drop out with fewer penalties, said Anat Alon-Beck, a professor of business law at Case Western Reserve University. Merger agreements typically contain certain “deals” between both parties between the signing of the merger agreement and closing.
Musk does not need to close unless Twitter “has fulfilled or has complied, in all material respects, with its obligations under this Settlement,” the settlement said, according to Alon-Beck. This includes the obligation to “promptly provide [Musk] all information relating to the business, property and personnel of the [Twitter] as may reasonably be requested in writing.”
“He can continue to ask Twitter for more information about the bot problem,” Alon-Beck said. “Eventually he’s going to ask questions they won’t answer, and then he can walk away.”