Musk Pulls out of Deal to Buy Twitter, Paving Way for Court Battle

Elon Musk has walked out of a $44 billion deal to take over Twitter, alleging the social network breached numerous parts of the agreement.

Musk clarified that the termination of the merger agreement comes on the back of a “material breach of multiple provisions of that Agreement” by Twitter.

He claims he pulled out because Twitter failed to provide enough information on the number of spam and fake accounts on its network.

The billionaire’s legal counsel accuses the microblogging site of making “false and misleading representations,” in addition to failing or refusing to provide information as part of contractual obligations.

Twitter said it plans to pursue legal action to enforce the agreement. 

Musk claims Twitter ignored requests

The filing states: “Sometimes Twitter has ignored Mr. Musk’s requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information.”

The disagreement in the deal arose when Musk accused Twitter of under-reporting the prevalence of spam bots on the site. Especially when the company had gone on record to state that false or spam accounts represented fewer than 5% of Twitter’s monetizable daily active users during the first quarter of the year.

Believing that the number of spambots on Twitter would be substantially higher, Musk challenged the company to hand over its analysis and calculations that led to the abovesaid conclusion. 

The filing remarked: “Mr. Musk has reason to believe that the true number of false or spam accounts on Twitter’s platform is substantially higher than the amount of less than 5% represented by Twitter in its SEC filings.”

Additionally, Musk was also seeking information about Twitter’s process for identifying and suspending spam and fake accounts, and the platform’s financial condition.

Musk also states that Twitter withheld the requested information for two months. 

He added: “While Twitter has provided some information, that information has come with strings attached, use limitations or other artificial formatting features, which has rendered some of the information minimally useful to Mr. Musk and his advisors.”

Meanwhile, Musk also argues against Twitter’s hiring freeze, and release of senior members from offices, saying: “The company has not received parent’s consent for changes in the conduct of its business, including for the specific changes listed above.”

Twitter to take Musk to court

In response, Twitter is reportedly preparing to sue the Tesla chief. Bret Taylor, chairman of the Twitter Board, emphasized “plans to pursue legal action to enforce the merger agreement.”

Ann Lipton, a professor of corporate governance at Tulane Law School, told the New York Times that the 51-year-old Tesla and SpaceX chief’s disagreement over spambot calculations might not be the basis to terminate the deal. 

“They’re only grounds to walk away if they are so overwhelmingly bad that it really just fundamentally jeopardizes the economics of the deal. That’s a company material adverse effect,” she said.

The development follows news of the United States Securities and Exchange Commission (SEC) and Federal Trade Commission (FTC) investigating Musk over his stake in the social network. 

This was soon after the billionaire gained backing for the buyout from 19 renowned investors, including Sequoia Capital, Andreessen Horowitz, and Binance.

Twitter employees have reportedly also been asked to refrain from commenting or tweeting about the potentially sub judice matter.

And if the matter reaches the Delaware Court, it is unclear at this point if the companies will re-negotiate the takeover or decide to mutually settle to close the dispute.

Reuters noted that if the Tesla chief decides to back off from the ongoing deal, he faces a $1 billion termination fee to Twitter.

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