Twitter Sale Trial Set for October as Musk Holds Firm on Exiting the Deal
Tesla CEO Elon Musk has backed out of his deal to buy Twitter for $44 billion, claiming that the site has more bots and fake accounts than was initially disclosed to him. Twitter threatened court action and the breach of this deal has led them to requesting an expedited trial date, which has now been set for October 17. Twitter pushed to have a trial date over Musk’s attempted exit set in a timely fashion as it’s been harming business operations and Twitter’s stock value.
The big uncertainty now is whether Musk’s claims will hold up in a judicial setting.
“You do not have to complete a purchase if false information was provided to you as part of your waiving of diligence,” said Daniel Newman, Founding Partner and Principal Analyst of Futurum Research. “Meaning you are basically making a buying decision based upon the information that you had reviewed being accurate.”
Both Twitter and Musk think their side is valid; does either side have more of a leg to stand on in court? Twitter claimed that spam accounts on the site are less than 5% of total users after their extensive research but Musk suggested the number is closer to 20% bots.
“What started to become evident in his diligence process was that the data was likely either falsified, which creates issues of potential fraud,” said Newman. “Or it was negligence and ignorance among the tech leadership within Twitter that was allowing the company to continue publishing bad data.”
Newman explained that Musk’s access to his own account statistics could be enough to validate his arguments; he is one of the most followed users on Twitter totaling 101.9 million followers, and the most followed CEO on the platform. If Musk runs an internal audit of his follower count, he could find a microcosm example of a higher concentration of bots on the platform than Twitter’s official 5%. However, Musk might still have to pay a $1 billion breakup fee unless he can prove the company falsified their value and bot users. Twitter still has a strong case in the legal battle as well because of the specifics of the merger agreement signed for the purchase. Still, Newman sees an easier resolution to this dispute.
“You’ve got a company that’s sort of limped along for a long time, providing data that it’s not evident that it is accurate. All [Musk] wants is an audit. If I was solving this I would make it real simple. They set a threshold, they audit the data, if the data is audited and the bot presence is less than X percent, he’s basically accountable to buy the company. If it’s greater than Y percent, he’s off the hook. And to me it’s almost that simple,” Newman said. “It won’t be…this will be dragged on and the lawyers will find loopholes to sue.”
On July 11, Twitter shares dropped 11.3%, coming to $32.65/share with the news that Musk is not going through with the deal. This price is about 40% below the deal price Musk was offering to pay. Executives at Twitter are caught in a limbo period, oscillating between maintaining Twitter as a publicly-traded company or taking on their self-proclaimed “lame duck” role, as CEO Parag Agrawal called it, amid a Musk buyout. Agrawal announced spending cuts and a hiring freeze back in May until the deal with Musk has been closed.
