In April, Tesla Chief and SpaceX CEO, Elon Musk, entered into a definitive agreement with Twitter to acquire the microblogging platform for approximately $44 billion. However, the deal was temporarily suspended in May due to pending records, supporting the microblogging site’s claim that less than 5% of daily active users are automated spam accounts.
It has now been learned that Musk has decided to end the deal to buy out the popular microblogging platform for failing to meet its contractual obligations as required.
According to a letter sent Friday to the U.S. Securities Exchange Commission (SEC) by Skadden Arps attorney Mike Ringler on behalf of Musk, it said Twitter was “materially violating multiple provisions” of the merger agreement.
The letter states that “Mr. Musk is terminating the merger agreement because Twitter is in material breach of multiple provisions of that agreement, appears to have made false and misleading statements that Mr. Musk relied on in entering into the merger agreement, and is likely to experience a material adverse effect on the company ( as that term is defined in the Merger Agreement).
Musk withdrew from the deal because Twitter hadn’t provided enough information to substantiate the company’s claim that spam and fake accounts make up less than 5% of total users.
“Twitter has failed or refused to provide this information. Sometimes Twitter has ignored Mr. Musk’s requests, sometimes it has rejected them for reasons that seem unwarranted, and sometimes it has claimed to comply while giving Mr. Musk incomplete or useless information,” Ringer claimed.
Musk believes spam and fake accounts can make up 20% or more of Twitter users. However, Twitter says it’s impossible to estimate spam accounts based on public information alone, and they have a team of experts conducting an assessment to reach the 5% mark.
“While this analysis is ongoing, all evidence suggests that several of Twitter’s public disclosures regarding its mDAUs are false or materially misleading,” Ringer claimed.
According to legal experts, this may not be enough of a reason for Musk to break the $44 billion deal. Under the terms of the original merger agreement, Musk must pay $1 billion if he pulls out unless he proves that Twitter has significantly misinformed him about factors related to the company’s value.
Meanwhile, Twitter had said it deletes 1 million spam accounts every day. In response to Musk’s letter, Twitter’s chairman of the board said it plans to take legal action to enforce the agreement.
“The Twitter Board is committed to closing the transaction at the price and terms agreed with Mr. Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Court of Chancery,” Twitter chairman Bret Taylor tweeted.
The Twitter Board is committed to closing the transaction at the price and terms agreed with Mr. Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Court of Chancery.
— Bret Taylor (@btaylor) July 8, 2022
Following the news, Twitter shares fell about 6% on Friday, while Tesla shares gained about 4% in after-hours trading.