Musk expected to take “drastic action” to break Twitter deal, report says

Elon Musk is expected to take “drastic action” to get out of his $44 billion deal to buy Twitter, The Washington Post wrote yesterday in an article citing “three people familiar with the matter.”

The anonymous sources seem to be from Musk’s camp. “Musk’s team has concluded it cannot verify Twitter’s figures on spam accounts,” and the Musk side’s “doubts about the spam figures signal they believe they do not have enough information to evaluate Twitter’s prospects as a business,” the Post wrote. Musk’s people have also reportedly “stopped engaging in certain discussions around funding for the $44 billion deal, including with a party named as a likely backer.”

According to the Post, one of its sources said Musk’s team is now “expected to take potentially drastic action. The person said it was likely a change in direction from Musk’s team would come soon, though they did not say exactly what they thought that change would be.”

None of the comments are far off from what Musk has publicly said himself since he began trying to get out of the Twitter deal. Even though his offer to buy Twitter waived “business due diligence,” he later threatened to pull out of the contract and claimed Twitter violated the merger agreement by refusing to provide the data behind its spam estimates. Twitter then gave Musk access to its data “firehose.”

Twitter “believes the deal contract is on its side”

Despite Musk framing his second thoughts as being solely about Twitter’s spam estimates, the Tesla CEO is likely wary of completing the purchase because the values of both Twitter and Tesla stock have plummeted since he struck the Twitter deal on April 25. The merger agreement itself doesn’t give Musk any easy way out. There’s a $1 billion breakup fee, but Musk can’t necessarily get out that cheaply, and his responsibility could end up being decided in court.

As we’ve written, the merger deal says that if Twitter meets its obligations under the agreement, it “shall be entitled to specific performance or other equitable remedy” to “cause the Equity Investor [Musk] to fund the Equity Financing, or to enforce the Equity Investor’s obligation to fund the Equity Financing directly, and to consummate the Closing.” Either Twitter or Musk could win an injunction or other relief in court “to prevent breaches of this Agreement.”

To try to get out of the agreement, Musk “could deliver a letter to Twitter saying he is terminating the deal, and he could sue Twitter,” The New York Times noted today. But there are “no clear grounds for Mr. Musk to try to break the deal,” and Twitter could countersue. The company “strongly believes that the deal contract is on its side, and that it would be an uphill battle for Mr. Musk,” the Times wrote.

The existence of spam accounts on Twitter was well-known before Musk agreed to buy the company. In the deal announcement, Musk said one of his main goals in buying Twitter was “defeating the spam bots.” Musk spoke to Twitter employees in a virtual town hall on June 16 but didn’t give any firm update during the meeting on whether he would complete the deal.

Firehose apparently won’t help Musk refute spam estimate

Musk has produced no evidence to refute Twitter’s specific claim about the number of spam accounts, which is that fewer than 5 percent of monetizable daily active users (mDAUs) are spam or fake. The firehose gives Musk access to all of the tweets on the platform, but that won’t necessarily show whether tweets were posted by humans or bots or how many people are viewing Twitter posts each day without making posts of their own.

Twitter defended its spam estimates in a briefing with reporters yesterday. “The company says it points human content reviewers at a specific sampling of tweets and relies on a variety of signals both public and private to evaluate the accounts’ activity,” Axios wrote after the briefing. “It says that no outsider, even those with access to its full stream of tweets, can replicate its process.”

The Wall Street Journal’s account of the briefing said that “Twitter officials declined to say whether the company shared the private user information with Mr. Musk. They would only say that Twitter has fully complied with the obligations of the purchase agreement and that the privacy of user information was important to the company.”

Twitter issued a statement early last month saying that it “has and will continue to cooperatively share information with Mr. Musk to consummate the transaction in accordance with the terms of the merger agreement. We believe this agreement is in the best interest of all shareholders. We intend to close the transaction and enforce the merger agreement at the agreed price and terms.”

When contacted by Ars today, Twitter said it has no further comment beyond its statement from a month ago. Twitter also told staff last month that a shareholder vote on the Musk deal should happen in late July or early August.

https://arstechnica.com/?p=1865085