Elon Musk’s purchase of Twitter appears to be in jeopardy as the Tesla CEO’s advisors warned the social media company Friday that he is backing out of their $44 billion deal.
In the filing to Twitter’s chief legal officer, Musk’s team said he was “terminating the Merger Agreement” between the two sides due to a “material breach” of the deal and “false and misleading representations” Twitter made prior to the agreement.
Ever since Musk announced his plan to purchase Twitter for $44 billion back in April, the tweet-happy CEO has accused the social media company of inflating its user base with spam accounts.
“For nearly two months, Mr. Musk has sought the data and information necessary to make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform,” Musk’s team writes. “Twitter has failed or refused to provide this information.”
Twitter has publicly said an estimated five percent of daily users who see ads are bots or spam accounts, though it admits it could be higher; Musk believes fake Twitter accounts actually comprise as much as 20 percent of the platform, as NPR notes. However, even if the data conflicts, that may not be enough for Musk to renege on the deal without penalty.
“Merger agreements are drafted to avoid exactly what Musk is doing, which is try to find some tiny little false thing and then say, ‘Whoops, I get to walk away now,’ ” Ann Lipton, a business law professor at Tulane University Law School, told NPR. “They specifically say things like, you can’t back out unless it’s not just false, but incredibly false, hugely false, massively damaging to the company.”
In addition to the battle of the bot data, Twitter’s stock has plummeted since Musk initially offered $54.20 per share. As of press time Friday, the stock was just under $37, nearly a third of its value shaved off from Musk’s offer.
One Twitter employee who asked not to be named told Rolling Stone, “I’m relieved [Musk] recognized now that he didn’t want the company rather than after the deal closed.”
However, the battle on if Musk can walk away is still far from over, and it will be costly no matter the outcome. Musk’s termination of the Twitter agreement will likely take the shape of a legal fight over the reported $1 billion penalty he would be forced to pay if he did back away from the deal before its completion.
Shortly following the news of Musk’s plan to pull out of the deal, Twitter’s Chairman Bret Taylor took to the platform to confirm the company is looking to force the sale via legal means. “The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.” A rep from Twitter responded to Rolling Stone‘s request for comment with a press release containing the same quote.
The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.
— Bret Taylor (@btaylor) July 8, 2022
Given Taylor’s statement, it is likely Twitter will sue Musk, and it could amount to more than the $1 billion dictated in the agreement, which includes a “specific performance” section that basically allows Twitter to take Musk to court in Delaware and force him to buy the company at the agreed price as long as he has the financing to do so, per Axios. It is also possible that the two sides could agree to sell for a lower price than the original deal to sidestep a drawn-out legal battle.
This is a developing story.