Elon Musk’s deal to buy Twitter is in jeopardy

Elon Musk’s agreement to buy Twitter is in serious danger, say three people who are familiar with the case, as Musk’s camp concluded that Twitter’s figures on spam accounts are not verifiable.

Musk’s team has stopped engaging in certain discussions regarding the financing of the $ 44 billion deal, including with a party designated as a likely supporter, one of the people said. The people spoke on condition of anonymity due to the sensitivity of the ongoing discussions.

Talks with investors have cooled in recent weeks as Musk’s camp has questioned the recent “fire hose” data – a wealth of data sold to corporate customers – they received from Twitter. Musk’s teams’ doubts about the spam numbers signal that they think they do not have enough information to assess Twitter’s prospects as a business, the people said.

Now that Musk’s team has concluded that they can not confirm Twitter’s figures on spam accounts, one of the people said that it is expected to take potentially drastic measures. The person said it was likely that a change of direction from Musk’s team would come soon, although they did not say exactly what they thought the change would be.

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The spam accounts are not the only reason why Musk can try to wriggle out of the agreement. Twitter’s share price has fallen dramatically since his takeover bid in April, leading to the impression that he is paying too much. And Musk also runs two other large companies, Tesla and SpaceX, along with some start-ups.

But the terms of the deal mean it would not be easy for Musk to walk away. Musk has agreed to complete it unless something big happens with Twitter’s business, and legal experts doubt that the fine issue will qualify. Twitter, which initially fought against Musk’s takeover bid, would be a weaker company if the deal falls apart than when Musk first bought a stake, and experts expect Twitter to fight to make it happen. Twitter itself has said that they intend to complete the agreement. Even if Musk convinces a judge to let him go, he could still be on the hook for the $ 1 billion settlement fee.

Twitter accepted a $ 44 billion takeover bid from Elon Musk on April 25. Why did he want to buy the social media giant? (Video: Hadley Green, Julie Yoon / The Washington Post)

Twitter spokesman Brian Poliakoff declined to comment, but referred to a statement the company made in June.

“Twitter has and will continue to cooperate in sharing information with Mr. Musk to complete the transaction in accordance with the terms of the merger agreement,” Twitter said in the June statement. “We believe that this agreement is in the best interests of all shareholders. We intend to terminate the transaction and enforce the merger agreement at the agreed price and terms. “

Musk did not respond to a request for comment.

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Musk shook up the social media world earlier this year with his unique offer to take the company private, arguing that he would be able to grow Twitter and make it more open and, in his mind, politically neutral. He said he would let former President Donald Trump return to office and claimed that the content moderation practice violated freedom of expression. Musk gave up the right to look more closely at the company’s finances when he signed the agreement.

But soon after, questions arose as to whether he would actually follow up. A global sale of technology shares cut deep into his personal net worth, which he had used to get liabilities for the debt he needed to buy Twitter.

At the Financial Times Future of the Car summit on May 10, Tesla’s CEO said permanently banning then-President Donald Trump from Twitter was “flat-out stupid.” (Video: Financial Times)

Musk’s enthusiasm for following up on the deal has been in doubt since at least May, when he said the deal was “on hold” until he could determine whether Twitter’s long-standing statement that less than 5 percent of accounts are robots or spam was accurate. . He accused Twitter of withholding information, while the company said it acted in good faith and provided all the terms of the agreement required.

“Twitter has not been cooperative,” said one person familiar with the discussions, commenting on the condition of anonymity due to the sensitive nature of the conversations.

But focusing on robots plays into Musk’s hand, lowering Twitter’s stock price and could potentially help him force Twitter to renegotiate the deal at a lower price.

Musk probably understands the difficulty of retiring at this stage, and gets him to find legal reasons to justify an exit, according to Carl Tobias, a law professor at the University of Richmond.

After raising the fine issue, for example, Musk said that Twitter’s figures could constitute a “material negative misstatement”, a probable reference to a contract clause that allows him to withdraw from the agreement in the event of a significant event that changes. fundamentally. The company.

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“I think that’s an excuse,” Tobias said. “It does not seem to me that a court would find it convincing.” Tobias cited Musk’s own waving of due diligence in his hasty acceptance of the agreement. “It seems to me that it undermines many arguments he could otherwise try to come up with,” he said.

The debate about bots on Twitter is not new, and has been a big part of the public conversation around the company for years. Musk often tweets his annoyance over the spread of spam and bot accounts on the site, and wrote in April that his goal was to “fight the spam bots or die on trial!” through its Twitter bid. External researchers have sometimes said that the number of robots and spam accounts can be much higher than Twitter’s estimate. But because of how quickly the tactics of creating and hiding the nature of fake accounts are changing, it is difficult for even experts to make strong statements about who is right.

Twitter has defended its process of measuring unwanted accounts, including in a news briefing Thursday morning.

Twitter said that every three months it takes a selection of “Monetizable Average Daily Users”, the base of users that the company feels comfortable charging advertisers to reach. It analyzes the sample by hand to determine if they are fake or not. It said that it has always been pleasant for the total to fall below the threshold of 5 percent.

Twitter does not ban all robots, which include accounts that post otter images by the hour or temperature of a particular location. Instead, it looks for indicators that suggest fake or coordinated spam activity, such as mass account creation or human coordination to artificially amplify a specific tweet, set of tweets or topic. The terms of the briefing precluded any of the experts being quoted directly or quoted by name.

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Musk’s takeover has thrown Twitter into chaos, creating divisions between employees and unrest for managers. Some workers, who fear Musk will roll back the security measures Twitter has put in place to keep malicious content off the site, have begun looking for new jobs and have predicted an emigration of employees if the billionaire buys the company.

Musk has already taken to Twitter executives by following the company’s guidelines on its own, reinforcing users who criticized the company’s top lawyer.

Even though the deal goes through, Twitter has been dragged through controversy, employee unrest and a rocky stock development for several months. Rebound will not be easy.

“No matter what: The company is in play now,” a person familiar with the matter told The Post in May. “I do not think there is a situation where Elon goes away and things can go back to normal.”

Rachel Lerman and Joseph Menn contributed to this report.

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