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The ‘rip cord’ Elon Musk could pull to get out of buying Twitter

The $44 billion Elon Musk agreed to pay for Twitter and take it private is looking less financially appealing.

Musk said Friday that the deal is on hold pending a review of Twitter’s measurement of spam or “fake” accounts on the platform, suggesting there could be an issue with the company’s disclosure of them.

Musk linked to a report of a filing this month by Twitter that indicated fake accounts comprise less than 5 percent of its 229 million users. As part of his bid to purchase the company, the billionaire had said one of his priorities is ridding the platform of “spam bots,” fake Twitter accounts that generate automated messages.

This latest development in Musk’s acquisition could signal he is looking for a way to change the terms of the deal, or perhaps back away from it entirely, without having to pay a $1 billion penalty.

Musk is relying on what is known as a specific performance clause in the contract to avoid that penalty. Essentially, the clause ensures that a purchaser is buying a product as promised, without any defects. Twitter did not immediately respond to a request for comment.

The company has previously disclosed it has performed internal surveys that found less than 5 percent of its daily active users are spam accounts. The matter is essential to how Twitter makes money. Ads, which generate revenue for the company, are served to its millions of users every day. Advertisers look for users to engage with, and spend money, based on those ads.

Since May 5, Twitter shares have lost about 20 percent of their value. The company was worth about $31 billion as of Friday.

Musk said he is still committed to the acquisition, but if he can prove Twitter is overrun with automated bot accounts, he could attempt to argue in court that Twitter as a product is faulty — or at least worth less than the price he agreed to pay for it — and that the deal should not go through.

Columbia University law professor Eric Talley said it appeared Musk was “looking for a rip cord to pull.”

It was not clear how Musk planned to verify the share of fake accounts. Musk could not immediately be reached for comment.

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