Elon Musk has terminated the much-talked-about $44 billion deal to buy Twitter. However, the microblogging platform’s board chair Bret Taylor said the company is committed to closing the deal and plans to “pursue legal action” to enforce the agreement.
A law firm representing Musk, in a letter to Twitter, alleged that the social media platform appears to have made false and misleading representations when Musk agreed to buy the company on April 25. It has breached multiple provisions of the initial agreement.
This comes after a months-long feud over how spam and fake accounts are on Twitter. The Tesla CEO had requested Twitter to provide details supporting its internal estimate that less than 5% of the platform’s accounts are spam or fake.
Spam accounts put a stop to the multi-billion dollar deal
Parag Agrawal, Twitter CEO, said an external review to determine the percentage of spam or fake accounts would be difficult to conduct. He cited the critical need to use both public and private information. On Thursday, Twitter’s executives in a briefing told reporters that the platform removes more than one million spam accounts each day. They reiterated that spam accounts were well under 5% of users who are served to advertise. Twitter highlighted that not all automated accounts are malicious bots.
Musk’s lawyer Mike Ringler said Twitter has not complied with its contractual obligations. He alleged that the platform did not provide his client, Musk, with the relevant business information he requested. The billionaire had wanted to access Twitter’s claims that about 5% of its monetized daily active users are spam accounts. As such, Ringler said Twitter failed or refused to provide the information. He even highlighted that Twitter ignored Musk’s requests and sometimes even rejected them for reasons that appear to be unjustified.
Ringler added that the social media company breached the merger agreement because it allegedly contains “materially inaccurate representations”. He outlined that Musk did not waive his right to review Twitter’s data and information because he chose not to seek this data and information before entering into the Merger Agreement. In fact, Musk negotiated access and information rights within the Merger Agreement precisely to review data and information that is important to Twitter’s business before financing and completing the transaction.
Twitter wants to go ahead with the sinking deal
But Twitter wants to go ahead with the deal no matter what. Its chairman said the Twitter board is committed to closing the transaction on the price and terms as agreed upon with Musk. Taylor said they are confident that the company will prevail in the Delaware Court of Chancery.
It should be noted that the platform has regularly disclosed in quarterly securities filing that it believes no more than 5% of the accounts on the site are fake or automated. Twitter, on June 8, had given access to even more information, including a raw feed of account activity. Ann Lipton, a law professor at Tulane University, said the whole issue of spam on the platform has been an issue for years. She pointed out that it would be surprising if that’s what gave Musk “cold feet”.
Carl Tobias, a law professor at the University of Richmond, said the Tesla CEO appears to be setting up the argument that he should not be on the hook for the $1 billion set out in the deal terms as a breakup fee in the event the acquisition fell through. He explained that the way these things usually work is that there’s a billion-dollar breakup fee and you are the one trying to acquire, then that is enforced upon you. But if there’s some kind of material breach or a reason can be offered up that persuades a court that, for example, Twitter is not making good on the deal.
Brian Quinn, a law professor at Boston College, says Twitter is likely to seek a ruling that it has not violated its contract with Musk, and it will likely seek a judicial order requiring the billionaire to complete the acquisition. He believes the court will likely consider the information Twitter has provided and whether Musk’s requests for further disclosures are reasonable and necessary for completing the deal.
There is also the likelihood that the two sides will keep talking and the situation could resolve itself through a renegotiated sale price.