Twitter ‘is in material breach of several provisions of this agreement’ and appears to have made ‘false and misleading statements’ when entering into the agreement, according to a letter from Mr. Musk’s attorney filed with regulators securities.
The filing ends nearly two months of high-stakes suspense over Mr. Musk’s intentions, while setting up a potential legal battle over what comes next for the social media platform.
Bret Taylor, Chairman of Twitter’s Board of Directors, tweeted Friday afternoon that the board plans to take legal action to enforce the deal at the price and terms originally agreed.
“We are confident that we will prevail in the Delaware Court of Chancery,” Mr. Taylor tweeted. Parag Agrawal, chief executive of Twitter, retweeted the post.
The company has repeatedly said over the past few weeks that it is sharing information with Mr. Musk to complete the deal as set out in the merger agreement – and that it intends to complete the transaction and to enforce the agreement at the agreed price and terms.
There is no guarantee that Mr. Musk will be able to opt out of the deal altogether, as Twitter is expected to challenge his legal arguments. Agreement disputes often end in negotiated settlements which may include a price reduction or one-time payments.
Mr. Musk’s lawyer raised concerns about Twitter’s estimates of how many of its daily users are fake or spam accounts as an issue raised by Mr. Musk about the near-deal. three weeks after signing.
Twitter shares fell more than 7% in after-hours trading on Friday following the disclosure.
Mr Musk’s decision to try to scrap a deal he initiated – citing a problem he knew about before agreeing to the deal – reinforces the billionaire’s reputation for unpredictability. It also leaves big questions about the future of Twitter, which Mr. Musk had pledged to rejuvenate, as the company and other social media platforms grapple with slowing digital advertising growth and a wider economic uncertainty.
At a minimum, Mr. Musk could be liable for a $1 billion severance fee, based on the terms of his April 25 acquisition agreement with Twitter. But the deal only gives him limited leeway to walk away and pay just that amount – and it’s unclear whether his complaints about Twitter account data qualify. The deal gives Twitter the right to try to force it to go through with the acquisition if it seeks to cancel it for other reasons.
The fate of the deal has been in question since May 13, when Mr Musk announced on Twitter that he was temporarily putting it “on hold” pending more information about the account issues. Twitter has long claimed that spam accounts for less than 5% of its monetizable daily active users, the top user number it discloses. Mr Musk suggested the figure could be closer to 20%, but did not elaborate on how he arrived at that calculation.
Mr. Musk initially said he was still committed to the acquisition, but May’s tweet sparked weeks of back-and-forth as Mr. Musk repeatedly questioned and mocked Twitter, often on its own platform, and asked the company to provide it with more data. check his calculations. Twitter continually said it was complying with its requests and eventually provided access to its so-called fire hose of tweets.
As recently as July 7, the company defended its accounting, saying it typically deletes more than a million spam accounts a day while they’re being set up or shortly thereafter. It also said it relies on closely held private user information to identify spam in a process that third parties without access to that data could not replicate.
As the battle against fake accounts raged on, tech stocks continued to fall. The tech-heavy Nasdaq composite index has fallen 15% since Mr. Musk unveiled his cash offer to buy Twitter at $54.20 a share on April 14. Shares of Twitter had fallen nearly 20% through Friday’s close, when they were at $36.81 apiece.
As he lined up financing for the deal, Mr Musk sold some of Tesla’s stock Inc.,
the electric vehicle manufacturer he heads. Tesla shares have fallen about 30% since Mr. Musk’s interest in Twitter first became public knowledge.
Outside experts say fake accounts and spam are a problem for Twitter, as well as other social media platforms, and the company’s calculations about its users are based in part on some of their private information. she won’t share, even with Mr. Musk.
Yet his decision to threaten the deal over the issue of fake accounts and spam raised eyebrows early on. One of Twitter’s most active and famous users, now with more than 100 million followers, he had complained about these concerns for years but agreed during deal negotiations to waive due diligence. reasonableness of Twitter’s activities.
As part of the deal, Mr. Musk also agreed not to disparage the company in public, but in the following days he took on some of Twitter’s policies, a company executive and the prevalence of bots and spam on the platform.
Mr. Musk escalated the battle with Twitter in a June 6 letter, accusing the company of failing to provide the information he was entitled to receive. Twitter said it was working with Mr Musk at the time and intended to complete the transaction on agreed terms and then agreed to hand over the fire hose.
Twitter now faces the prospect of a delicate legal battle to force Mr Musk to complete the purchase or provide what he considers fair compensation under a legal protection called “specific performance”. There are ways for Mr. Musk to combat such an outcome. He could, for example, prove that something materially changed in Twitter’s business since he agreed to buy the company, or that he failed to secure the necessary debt financing.
Write to Meghan Bobrowsky at [email protected] and Cara Lombardo at [email protected]
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