Elon Musk formally attempts to back out of his purchase of Twitter.
He accuses the company of false and misleading statements
Elon Musk has formally attempted to back out of his $44 billion deal to acquire Twitter. Musk’s team alleges in a filing with the Securities and Exchange Commission on Friday afternoon that he is cancelling the contract because Twitter was in “material violation” of their agreement and made “false and misleading” representations during discussions.
“For over two months, Mr. Musk sought the data and information required to’make an impartial assessment of the incidence of false or spam accounts on Twitter’s network,'” Musk’s legal team says. “Twitter has failed to give this information or has refused to disclose it.”
Despite Musk’s attempted firing, Twitter remains optimistic about closing the acquisition. Twitter board chairman Bret Taylor stated in a blog post that the firm will “pursue legal action to enforce the merger agreement” and is “confident we will succeed” in court.
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
Musk has been threatening to back out of the pact since only a few weeks after signing it, arguing that Twitter issued deceptive statistics regarding the number of spam bots on its network. However, it is questionable if Musk can legally terminate his agreement merely because he is unhappy with the prevalence of spam on Twitter, which he might have checked before signing the contract.
Twitter has gone to tremendous efforts to comply with Musk’s demands. In early June, the business enabled “firehose” access to its service, allowing Musk to receive and analyze every tweet as they were made. The company has also made repeated attempts to reassure the public that spam and bots are under control. It informed the press on Thursday that it was banning over a million spam accounts each day, and its CEO published a lengthy thread in May describing how Twitter decides how many of its users are bots.
Musk’s team also says that Twitter violated their agreement by firing two senior executives, laying off a portion of its talent acquisition team, and instituting a hiring freeze in recent months because the firm did not seek authorization to deviate from its “ordinary course” of business.
Musk must demonstrate that Twitter has violated their agreement, as he cannot simply rip out the inked agreement whenever he wants. And Twitter has an incentive to want to keep the agreement intact: the transaction was potentially profitable for Twitter stockholders, providing $54.20 per share, up from the $36.81 it ended at today. There is also a $1 billion breakup fee on the table, which will be paid by the side at fault.
Musk must demonstrate that Twitter has violated their agreement since he cannot simply withdraw from the inked deal at will. And Twitter has a motive to want to keep the arrangement together: the transaction was potentially profitable for Twitter stockholders, giving $54.20 per share, up from the $36.81 it ended at today. A $1 billion breakup cost will be paid by the side at fault.
On some level, Musk’s Twitter acquisition has always appeared to be more of a game than a genuine endeavor to buy and build a firm. The arrangement arose after Musk acquired a 9% investment in Twitter (which he appears to have belatedly told the SEC about) before agreeing to take a position on the company’s board, ranting about the company on Twitter, and subsequently canceling his commitment to accept a board seat.
Musk seems to prefer the chance to make optimistic product ideas about free speech and corporate independence over developing a cohesive business plan for Twitter. According to The New York Times, Musk sketched forth aspirations for Twitter under his leadership that appeared, to put it mildly, overly unrealistic. Musk allegedly promised investors that in six years, he could treble income and users. It was never obvious what Musk would do to achieve this goal.