HomeBusinessElon Musk tells Twitter he wants out of contract to buy it

Elon Musk tells Twitter he wants out of contract to buy it

A lawyer representing Musk claimed in a letter to Twitter’s top lawyer that he was terminating the deal because Twitter (TWTR) is “in material breach of several provisions” of the original agreement, which was signed in April, according to a regulatory filing late Friday.
Musk has for weeks expressed concerns, without any apparent evidence, that there are more bots and spam accounts on the platform than Twitter has publicly stated. Analysts have speculated the concerns could be an attempt to create a pretext to pull out of a deal he may now view as too expensive, after Twitter shares and the tech market in general have fallen in recent years. weeks. You’re here (TSLA) The shares, which Musk planned to rely on in part to fund the deal, have also fallen sharply since he agreed to the deal.

“Twitter’s board of directors is committed to completing the transaction at the price and terms agreed to with Mr. Musk and plans to pursue legal action to enforce the merger agreement,” the chairman said. Twitter board of directors Bret Taylor in a tweet on Friday, echoing the company’s previous statements that it planned to follow through on the deal. “We are confident that we will prevail in the Delaware Court of Chancery.”

Twitter shares fell nearly 6% in after-hours trading on Friday immediately after the news, after ending the day down 5%. Tesla stock gained more than 1% in after-hours trading.

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

Still, Musk’s attorney alleged in Friday’s letter that Twitter had “failed to meet its contractual obligations” to provide Musk with sufficient data, and said Twitter “appears to have made false and misleading statements about which Mr. Musk leaned on” when he agreed to the deal.

“For nearly two months, Mr. Musk has researched the data and information needed to ‘make an independent assessment of the prevalence of fake accounts or spam on the Twitter platform,'” the letter on Friday read. . “This information is fundamental to Twitter’s business and financial performance and is necessary to complete the transactions contemplated by the merger agreement.”

He continues: “Twitter did not provide 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 pretended to comply while giving Mr. Musk incomplete or incomplete information. unusable information.”

Twitter has repeatedly said it shared information in cooperation with Musk to complete the deal on the terms originally agreed.

Twitter’s stock is trading around $36, down nearly 30% from its price the day Musk and Twitter announced the acquisition and well below the $54.20 per share offered by Musk, suggesting a deep skepticism among investors about the deal being struck at the agreed price. The drop in value could also be one of the reasons Musk is no longer interested in the deal, analysts said.

What could happen next

In accusing Twitter of materially breaching the merger agreement, Musk appears to be asserting that he should not be liable for the billion dollars provided under the terms of the agreement as severance pay in the event of a the acquisition failed, according to Carl Tobias, a law professor at the University of Richmond.

“The way these things generally work is if there’s a billion dollar breakout fee and you’re the one trying to acquire, then it’s imposed on you,” Tobias said, “at unless there is some kind of material breach or some kind of a reason that can be put forward to persuade a court that Twitter, for example, is not abiding by the agreement.”

Musk’s attorney claimed in Friday’s letter that Musk requested, but did not receive, information such as the daily number of monetizable daily active users for the previous eight quarters, as well as access to ” the sample set used and calculations made” by Twitter to determine that spam and fake accounts represent less than 5% of its monetizable daily user base. Twitter said it relies on public and private information, such as ISP numbers and geographic data, about its users to count bots on the platform.

Elon Musk lobbied Twitter to give him access to a

Although he signed a binding acquisition agreement, Friday’s letter also claims that Musk “negotiated access and information rights as part of the merger agreement precisely so that he could review the data and information material to Twitter’s business prior to funding and completing the transaction.”

Twitter is likely to ask the court for two things in its litigation against Musk, said Boston College law professor Brian Quinn. Twitter should seek a ruling that it did not violate its contract with Musk, and it will likely seek a court order compelling Musk to complete the acquisition, he said.

In assessing Musk’s claims, Quinn added, the court will likely consider the information Twitter has provided so far and whether Musk’s requests for additional disclosures are reasonable and necessary to complete the deal — for example, whether the information that Musk wishes are necessary to obtain regulatory information from the government. funding approvals or commitments.

However, even if any litigation continues, the two sides will likely continue to talk, Quinn said, and the situation could be resolved with a renegotiated sale price. This type of resolution is common in merger disputes, he said, citing the recent deal involving luxury brands Luis Vuitton and Tiffany, which went to court but ultimately settled for a lower price.

Musk’s assertion that he needs more information “is a tough argument to make,” Quinn added. “A Delaware judge will be pretty familiar with how these transactions work and what’s normal and what’s not.”

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