Billionaire Tesla CEO Elon Musk is threatening to pull out of his $44 billion agreement to purchase social media platform Twitter, accusing the company of refusing to give him information about its spam bot accounts, according to a letter from his attorneys.

What You Need To Know

  • Billionaire Tesla CEO Elon Musk is threatening to pull out of his $44 billion agreement to purchase social media platform Twitter

  • Musk accused Twitter of refusing to give him information about its spam bot accounts, according to a letter from his attorneys

  • Twitter CEO Parag Agrawal has said the company has consistently estimated that fewer than 5% of Twitter accounts are fake

  • Experts have said Musk can’t unilaterally place the deal on hold; if he walks away, he could be on the hook for a $1 billion breakup fee

The letter says Musk has repeatedly asked for the information since May 9, about a month after his offer to buy the company, so he could evaluate how many of the company’s 229 million accounts are fake.

"As Twitter’s prospective owner, Mr. Musk is clearly entitled to the requested data to enable him to prepare for transitioning Twitter’s business to his ownership and to facilitate his transaction financing," the letter reads. "To do both, he must have a complete and accurate understanding of the very core of Twitter’s business model — its active user base. In any event, Mr. Musk is not required to explain his rationale for requesting the data, nor submit to the new conditions the company has attempted to impose on his contractual right to the requested data."

The lawyers say in the letter that Twitter has offered only to provide details about the company’s testing methods. But they contend that’s “tantamount to refusing Mr. Musk’s data requests.” Musk wants data so he can do his own verification of what he says are Twitter’s lax methodologies.

"At this point, Mr. Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover," the letter continues.

According to the letter, Musk "believes the company is actively resisting and thwarting his information rights (and the company’s corresponding obligations) under the merger agreement," calling it a "material breach" of Twitter's obligations under the agreement. The attorneys go on to assert Musk's "right not to consummate the transaction and his right to terminate the merger agreement."

In a statement, Twitter said 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," the company continued. "We intend to close the transaction and enforce the merger agreement at the agreed price and terms.”

Shares of Twitter Inc. slid more than 4% Monday, likely incensing Twitter shareholders who filed a suit against Musk late last month for deflating the price of the stock. Shares of Twitter are down 23% in the last month.

Twitter CEO Parag Agrawal has said the company has consistently estimated that fewer than 5% of Twitter accounts are fake. Twitter has disclosed its bot estimates to the U.S. Securities and Exchange Commission for years, while also cautioning that its estimate might be too low.

The bot problem also reflects a longtime fixation for Musk, one of Twitter’s most active celebrity users, whose name and likeness are often mimicked by fake accounts promoting cryptocurrency scams. Musk appears to think such bots are also a problem for most other Twitter users, as well as advertisers who take out ads on the platform based on how many real people they expect to reach.

Experts have said Musk can’t unilaterally place the deal on hold, although that hasn’t stopped him from acting as though he can. If he walks away, he could be on the hook for a $1 billion breakup fee.

The Twitter sale agreement allows Musk to get out of the deal if there is a “material adverse effect” caused by the company. It defines that as a change that negatively affects Twitter’s business or financial conditions.

The letter points to a spat over a June 1 letter from Twitter in which the company said its information obligations are limited to facilitating the closing of the sale. It says Twitter is obligated to provide data for any reasonable business purpose needed to complete the deal.

Twitter also has to cooperate with Musk’s effort to get the financing for the deal, including providing information that’s “reasonably requested” by Musk, the letter states.

The letter contends that Musk is not required to explain his rationale for requesting data or submit to “new conditions the company has attempted to impose on his contractual right to the requested data.”

It alleges that Musk is entitled to the data about the core of Twitter’s business model so he can prepare the transition to his ownership.

“If Twitter is confident in its publicized spam estimates, Mr. Musk does not understand the company’s reluctance to allow Mr. Musk to independently evaluate those estimates,” the letter says, adding that Musk agrees not to disclose or keep the data.