Twitter urges Musk to complete takeover as ‘fake bot’ row heats up

Tesla founder is playing a dangerous game as he slams the breaks on takeover of social media giant, write James Titcomb and Lucy Burton

‘Twitter’s CEO publicly refused to show proof of <5pc. This deal cannot move forward until he does’

TWITTER has demanded that Elon Musk goes ahead with his $44bn (£35bn) takeover of the company as a row over fake user accounts threatens to derail the deal.

The social network said in a filing yesterday that it was “committed to completing the transaction on the agreed price and terms as promptly as practicable” after Mr Musk said he wanted to pause the takeover, one of the biggest debt-fuelled buyouts in history.

It raises the prospect that Twitter could take legal action to force Mr Musk, the world’s richest man, to go ahead with the acquisition.

The intervention comes after Mr Musk said “the deal cannot move forward” unless Twitter backs up its claim that fewer than 5pc of daily users are fake. He previously said that he had put the takeover “on hold”.

The billionaire then suggested that US regulators should investigate Twitter.

Mr Musk, who had promised not to publicly disparage Twitter and its executives when he agreed the takeover last month, has ramped up attacks on the social network by claiming it dramatically underestimates how many users are fake or pushing spam.

The claim is widely seen as a negotiating tactic to reduce what Mr Musk is obliged to pay. On Monday he said paying a lower price than his $54.20 a share bid was “not out of the question”.

Twitter is now worth about $15bn less than Mr Musk’s initial offer price following a sell-off of tech stocks.

Writing on Twitter, Mr Musk said: “My offer was based on Twitter’s SEC [US Securities and Exchange Commission] filings being accurate.

“Yesterday, Twitter’s CEO publicly refused to show proof of <5pc. This deal cannot move forward until he does.”

He later responded to a tweet suggesting Twitter undercounting fake accounts would amount to fraud, saying “absolutely”, and wrote “Hello @SECGOV, anyone home?” in response to a call for US regulators to investigate the company.

Twitter has consistently said since 2014 that it estimates fewer than 5pc of its 229m daily users are fake accounts.

Legal experts said Mr Musk had little leeway to walk away, and doing so could invite a challenge from Twitter seeking damages. However, the company could accept a takeover at a lower price instead of fighting a lengthy battle.

John Coffee, of the Centre on Corporate Governance at Columbia Law School in New York, said: “They may get damages. But they would have a year of uncertainty. And they would lose employees in that time.”

On Monday, Parag Agrawal, Twitter’s chief executive, said the company suspends over half a million spam accounts daily – “well under” 5pc – but that the company could not share private information on how it calculates this.

A lengthy US filing yesterday by Twitter revealed Mr Musk had discussed the prospect of a takeover with executives as early as March, before it emerged that he had taken a 9pc stake in the company. He had also said he could instead start a rival. The filing also revealed that Twitter’s co-founder Jack Dorsey had said the company would be better off if it were to go private.

Elon Musk got off lightly the last time he backed out of a multibillion-dollar deal. When the billionaire botched a $72bn (£58bn) attempt to take his electric car company, Tesla, private in 2018, he earned a figurative slap on the wrist.

Regulators fined Musk a token $20m and forced him to step down as Tesla chairman, but he remained in charge, steering it to become the car industry’s most valuable company and becoming the world’s wealthiest man in the process.

Unwinding his offer to buy Twitter is unlikely to be so simple. Last Friday Musk said the $44bn deal was “on hold” as he demanded the social network hand over more information on how many fake and spam accounts plague the service. Yesterday, he said “this deal cannot move forward” until the company comes clean about its calculation that under 5pc of daily users are illegitimate.

Musk’s concerns, aired in public to his 94m Twitter followers, reflect a genuine grievance: the Tesla billionaire has repeatedly said that dealing with spam bots is one of his top priorities for Twitter. But his actions have been widely perceived as a high-wire attempt to slash the price he is paying for Twitter, or back out of the deal completely.

Twitter shares, which have traded below Musk’s $54.20 offer price since the deal was agreed on April 25, have plunged in recent days. Yesterday, they traded more than 30pc below Musk’s offer price. Musk has admitted that he could seek to buy Twitter at a knock-down price, telling a conference on Monday that it was not “out of the question”.

Twitter seems prepared to challenge him. In a US filing, the company said it was “committed to completing the transaction on the agreed price and terms as promptly as practicable”.

Playing hardball has served Musk well so far, however. After revealing his $44bn bid for Twitter on April 14, Musk stood by it, refusing to raise his offer as the company’s board scrambled to respond and sought to rally investors against the Tesla chief.

Musk correctly bet that investors would pressure the company to accept the offer, and 10 days after making his bid, threatened to go directly to them. “I have attached a merger agreement that is ‘seller friendly’ and that does not require you to recommend in favour of my offer. This will provide all shareholders a voice, and allow for a democratic decision consistent with Twitter’s ethos,” he wrote to Twitter chairman Bret Taylor. A day later, Twitter’s board capitulated and accepted Musk’s offer.

But he is on more shaky ground this time. Musk’s agreement to buy the company, which expires in October, is binding. The $1bn break fee the billionaire has agreed to pay if the deal fails applies only if the purchase is scuppered by other means, such as if regulators block it. Simply walking away invites a potential lawsuit.

None the less, Musk appears set for a fight. He claims Twitter has wildly underestimated the number of fake accounts on the service and said yesterday that his offer “was based on Twitter’s SEC filings being accurate”. Musk claims that the true number of fake users could be at least 50pc, more than 10 times what Twitter itself says.

Independent researchers said Musk may have a point. Figures from market research company Sparktoro and analytics firm Followerwonk claim that Twitter may be undercounting fake accounts by four times. They said an analysis of accounts over the weekend suggested the true number is around 20pc, although they admitted that it had less data than Twitter itself. The firms added that high-profile accounts such as Musk’s are more likely to attract bots and spam accounts, with as many as 70pc of Musk’s own followers “unlikely to be authentic”.

Twitter has admitted that its own figures for the number of fake accounts are merely estimates, meaning even if Musk is correct that Twitter is undercounting, he has little ground on which to claim he has been misled.

The company said yesterday that Musk can only back out of the deal if Twitter reneges on standard takeover promises, such as not to make large acquisitions before the deal closes.

“It’s a very, very weak legal case,” says John Coffee, of the Centre on Corporate Governance at Columbia Law School in New York. “He’s in the weakest possible position. He did no due diligence. He wanted to rush it [the deal], he wanted it expedited.

“Delaware [where Twitter is registered] will almost never let you escape a merger agreement, unless it’s something that would shock the entire world.”

Twitter could seek an injunction forcing Musk to go ahead with the deal. But even if it has the right to take Musk to court, it may not have the appetite.

His fortune of more than $200bn makes him worth several times what Twitter is worth, giving him plenty of firepower for a protracted legal battle. Musk has plenty of courtroom history, launching legal challenges against the Securities and Exchange Commission over a 2018 settlement related to the botched Tesla deal, and successfully defending himself in a defamation case brought by a British caving expert whom he had called a “pedo guy”.

Coffee says Musk is likely to be gambling that Twitter would rather sell itself at a lower price than go through years of litigation against an unpredictable and high-profile target.

“Nobody is going to pay a higher price than $54.20. They may get damages. But they have a year of uncertainty,” he says.

It would not be the first time. One veteran banker compares the conflict to French luxury giant LVMH’S takeover of the US jeweller Tiffany last

‘Nobody is going to pay more than $54.20. They may get damages. But they have a year of uncertainty’

year. After agreeing a $16.2bn takeover in 2019, LVMH attempted to back out during the pandemic. Tiffany sued and ultimately the deal went ahead, but at a slightly reduced $15.8bn.

Musk may demand a bigger discount than that. Short seller Hindenburg Research said last week that a recent tech crash means Twitter shares would be worth around $31 if Musk had not launched his takeover bid. Yesterday they were trading at $37, indicating that investors believe a deal will still happen.

“Fear is an interesting thing with shareholders – Musk is going to engineer his way into getting this,” says Jonathan Cohen, partner at law firm Ashurst. “You can’t halve the price, clearly – but there will be some deal done. They’ll swallow it, take a price chip and cosy up to their new master.”