Mr. Musk, who signed a deal to acquire Twitter in April, has, in recent weeks, threatened to put the deal “on hold” over its number of fake accounts. Last month, he tweeted that “the deal cannot move forward” until Twitter shows “proof” that these accounts make up less than 5 percent of its users, as Twitter has repeatedly said. He made similar remarks at a conference in Miami, indicating that he may be trying to lay the groundwork to rework the deal.
In doing so, Mr. Musk appeared to be building a case to argue that Twitter had experienced a “material adverse change,” or a change that would significantly affect its business, which could allow him to break off the deal. Legal experts have questioned the merits of that argument, particularly since Twitter has long disclosed that fake accounts represent about 5 percent of its users. Mr. Musk’s letter on Monday, though, represented a new strategy.
“What he is actually doing is a much more clever attempt to get out of the merger agreement,” said Ann Lipton, a professor of corporate governance at Tulane Law School. “If Twitter were really stonewalling information requests, and those information requests were necessary or reasonable for Musk to be able to get his financing — which is what he’s claiming in this letter — then that would conceivably be a breach that allows Musk to walk away.”
Twitter could, in turn, argue it does not have the information that Mr. Musk is demanding, or that it is not necessary for the deal to close, she said.
How Elon Musk’s Twitter Deal Unfolded
A blockbuster deal. Elon Musk, the world’s wealthiest man, capped what seemed an improbable attempt by the famously mercurial billionaire to buy Twitter for roughly $44 billion. Here’s how the deal unfolded:
“The merger agreement provides for information, with exceptions, but that doesn’t mean he can get any information he wants,” said Edward Rock, a professor of corporate governance at the New York University School of Law. “What I don’t know is what information he is asking for.”
A deal is expected to close by Oct. 24. If it does not close by then, either side can walk away. If the transaction is delayed by regulatory approvals at that time, Mr. Musk and Twitter would have another six months to close it.
Last week, Twitter announced it had received regulatory clearance from the Federal Trade Commission to proceed with the deal. Last month, Mr. Musk disclosed in a filing that he had raised his personal cash commitment to the deal, canceling a planned loan against shares of Tesla. Mr. Musk said he was in talks with other Twitter shareholders, including the company’s co-founder and former chief executive, Jack Dorsey, about rolling their existing shares into the company after it is taken private, rather than selling their stakes as part of the deal.