“Twitter’s board of directors is committed to closing the transaction at the price and terms agreed upon with Mr. Musk and plans to take legal action to enforce the merger agreement,” said Twitter chairman Brett Taylor. , in a tweet on Friday, repeating earlier statements by the company that it planned to follow through on the deal. “We are confident that we will prevail in the Delaware Court of First Instance.” Shares of Twitter 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. Musk in May said the deal was “on hold” as he assessed the number of spam and fake accounts on the platform — a reversal from his earlier statements that he wanted to acquire Twitter to eliminate bots on the platform. Last month, it 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 the stream of “firehose” tweets. But Musk’s lawyer argued in Friday’s letter that Twitter “failed to comply with its contractual obligations” to provide Musk with sufficient data and said Twitter “appears to have made false and misleading statements relied upon by Mr. Musk ” when he agreed to the deal. “For nearly two months, Mr. Musk sought the data and information needed to ‘make an independent assessment of the prevalence of fake or spammy accounts on the Twitter platform,’” Friday’s letter said. “This information is fundamental to Twitter’s business and financial performance and is necessary to complete the transactions contemplated by the Merger Agreement.” It continues: “Twitter has failed or refused to provide this information. Twitter has sometimes ignored Mr. Musk’s requests, sometimes denied them for reasons that appear unwarranted, and sometimes claimed to comply while providing Mr. Musk with incomplete or useless information.” Twitter has repeatedly said it shared information with Musk in order to close the deal on the originally agreed terms. Twitter stock is trading around $36, down nearly 30% since the day Musk and Twitter announced the acquisition and well below the $54.20 per share Musk offered, suggesting deep skepticism among investors about the agreement at the agreed price. Declining value may also be one of the reasons why Musk is no longer interested in the deal, analysts said.
What could happen next?
By accusing Twitter of materially breaching the merger agreement, Musk appears to be arguing that he shouldn’t be on the hook for the $1 billion set out in the deal’s terms as a breakup fee should the acquisition fall through, according to Carl Tobias. professor of law at the University of Richmond. “The way these things usually work is if there’s a billion-dollar breakup fee and you’re the one trying to get it, then that’s enforced against you,” Tobias said, “unless there’s some kind of material breach or some kind of Reason that can be offered and convinces a court that Twitter, for example, does not perform the agreement.” Musk’s lawyer claimed in Friday’s letter that Musk requested, but did not receive, information such as the number of monetizable daily active users for the previous eight quarters, as well as access to the “sample set used and calculations performed.” by Twitter to determine that spam and fake accounts represent less than 5% of the daily monetizable user base. Twitter has said it relies on public and private information, such as ISP numbers and geographic data, on its users to count bots on the platform. Despite signing a binding buyout agreement, Friday’s letter also alleges that Musk “negotiated access and information rights under the Merger Agreement precisely so that he could control data and information important to Twitter’s business before fund and complete the transaction.” Twitter is likely to ask the court for two things in its lawsuit against Musk, said Brian Quinn, a law professor at Boston College. Twitter is expected to seek a ruling that it has not breached its contract with Musk and will likely seek a court order requiring Musk to complete the acquisition, he said. In evaluating Musk’s claims, Quinn added, the court will likely consider the information Twitter has provided so far and whether Musk’s requests for further disclosures are reasonable and necessary to complete the deal — for example, whether the information Musk wants is necessary to obtain government regulatory approvals or funding commitments. While any litigation continues, however, the two sides will likely continue to talk, Quinn said, and the situation could resolve itself through a renegotiated sale price. This type of resolution is common in merger disputes, he said, citing the recent deal with luxury brands Luis Vuitton and Tiffany, which went to court but ultimately settled at a lower price. Musk’s claim that he needs more information “is a difficult argument,” Quinn added. “A Delaware judge will be quite familiar with how these transactions work and what is normal and what is not.”
