Elon Musk told Twitter he wanted to get out of his deal to buy it

A lawyer representing Musk claimed in a letter to Twitter’s chief lawyer that he is ending the deal because of Twitter (TWTR) It is a “material breach of many clauses” of the original agreement, which was signed in April, according to a regulatory filing Friday night.
For weeks Musk has expressed concerns, without any clear evidence, that there are more bot and spam accounts on the platform than Twitter has publicly stated. Analysts have speculated that the concerns may be an attempt to create an excuse to exit a deal that he may now see as overblown, after shares of Twitter and the broader tech market plunged in recent weeks. Tesla (TSLA) The shares, which Musk had intended to rely in part to fund the deal, have also fallen sharply since agreeing to the deal.

Twitter Chairman Brett Taylor said in a Friday tweet, “The Twitter board is committed to closing the deal on the price and terms agreed with Mr. “We are confident we will prevail in Delaware Chancery Court.”

Twitter shares fell about 6% in after-hours trading on Friday immediately following the news, having finished the day 5% lower. Tesla stock gained more than 1% in trading after the close.

Musk said in May that the deal was “on hold” as he assessed the number of spam and fake accounts on the platform – a reversal of his earlier statements that he wanted Twitter to root out bots on the platform. Last month, he directly threatened to walk away from the deal, accusing Twitter of breaching the merger agreement by not providing the data it says it needs to assess the number of fake and spam accounts on the platform. In response, Twitter agreed to hand over its “streaming” series of tweets.

However, Musk’s lawyer claimed in Friday’s letter that Twitter “did not comply with its contractual obligations” to provide Musk with sufficient data, and said Twitter “appears to have made false and misleading allegations on which Mr. Musk has relied” when agreeing to deals.

“Nearly two months ago, Mr. Musk sought to obtain the data and information necessary to “make an independent assessment of the prevalence of counterfeit accounts or spam on the Twitter platform.” This information is essential to Twitter’s business and financial performance and is necessary to complete the transactions set out in merger agreement.

He continues: “Twitter has failed or refused to provide this information. Sometimes Twitter ignored Mr. Musk’s requests, sometimes denied them for seemingly unjustified reasons, and sometimes claimed compliance while Mr. Musk gave incomplete or unusable information.”

Twitter has repeatedly said it has collaboratively shared the information with Musk in order to close the deal on the terms originally agreed upon.

Twitter’s stock is trading around $36, down nearly 30% since its price on the day Musk and Twitter announced the acquisition and well below the $54.20 per share offered by Musk, indicating deep skepticism among investors about the deal going on at the agreed-upon price. . Analysts said the decline in value may also be among the reasons for Musk’s lack of interest in the deal.

What could happen next

In accusing Twitter of materially breaching the merger agreement, Musk appears to be making the case that it shouldn’t be on the hook for the $1 billion stipulated in the terms of the deal as a termination fee if the acquisition fails, according to Karl Tobias, a law professor at the University of Richmond.

“The way these things usually work is that if there’s a $1 billion breakup fee and you’re the one trying to get it, that will be charged to you,” Tobias said, “unless there is some kind of physical breach or some kind of The reason that can be given that convinces the court that Twitter, for example, is not up to the bargain.”

In Friday’s letter, Musk’s attorney claimed that Musk requested, but did not receive, information such as the daily number of monetized daily active users over the previous eight quarters, as well as access to “the sample set used and accounts made” by Twitter to determine that the accounts Fakes and spam account for less than 5% of our daily monetized user base. Twitter said that it provides public and private information, such as ISP numbers and geographic data, on its users to account for bots on the platform.

Despite signing a binding acquisition agreement, Friday’s letter also claims that Musk “negotiated access and information rights within the merger agreement specifically so that he could review data and information critical to Twitter’s business before financing and completing the transaction.”

Brian Quinn, a professor of law at Boston College, said Twitter is likely to ask the court for two orders in the litigation against Musk. He said Twitter is expected to seek a non-violation of its contract with Musk, and will likely seek an injunction requiring Musk to complete the acquisition.

Quinn added that when evaluating Musk’s claims, the court will likely consider the information Twitter has provided so far and whether Musk’s requests for more disclosures are reasonable and necessary to complete the deal — for example, whether the information Musk wants is necessary to obtain government regulatory information. approvals or financing commitments.

Even as any litigation continues, the two parties are likely to continue talking, and the situation could resolve itself by renegotiating the sale price, Quinn said. This type of settlement is common in merger disputes, he said, citing a recent deal involving luxury brands Louis Vuitton and Tiffany, which went to court but was eventually finalized at a lower price.

Quinn added that Musk’s claim that more information is needed “is a difficult argument.” “The judge in Delaware will be very familiar with how these transactions work and what is normal and what is not.”

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