UPDATED: Elon Musk has called the whole thing off — but Twitter isn’t done with him yet.
The mega-billionaire terminated his $44 billion offer for Twitter, notifying the company of the decision on Friday in a letter from his lawyers, according to a regulatory filing. Musk is primarily claiming that Twitter misrepresented the scope of spam and fake accounts on the social network, saying his team’s preliminary estimates put that “wildly higher” than the sub-5% figure that Twitter has repeatedly claimed.
Twitter said it plans to sue Musk over his nixing of the deal and hold him to his $54.20-per-share deal price.
“The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement,” Twitter chairman Bret Taylor, who is also co-CEO of Salesforce, wrote in a tweet. “We are confident we will prevail in the Delaware Court of Chancery.”
With Musk bailing on the Twitter takeover, the CEO of Tesla and SpaceX would have to pay a $1 billion breakup fee to Twitter (and he could be the target of additional litigation), unless he is able to prove Twitter significantly misled him about factors related to the company’s value.
“Mr. Musk is terminating the Merger Agreement because Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect (as that term is defined in the Merger Agreement),” said the letter to Twitter.
Musk, the world’s wealthiest individual, turned heads in April when he clinched a deal to buy Twitter with the social network’s board. He excitedly discussed ideas he had for Twitter, including requiring that it strictly adhere to “free speech” principles and floating the idea that the service would charge companies a fee to be on the platform.
But there were soon signs Musk was having buyer’s remorse. Last month, Musk’s lawyers warned that Twitter was in “material breach” of the merger agreement because the company was “actively resisting and thwarting his information rights” by failing to provide data backing up its claims about fake and spam accounts. Musk also has acknowledged that lining up debt financing to swing the deal was an obstacle.
The letter Friday from Musk’s lawyers said “it appears that Twitter is dramatically understating the proportion of spam and false accounts represented in its [monetizable daily active user] count.” According to the letter, Twitter also in breach of the acquisition agreement because the company made false claims to the SEC about fake and spam accounts representing less than 5% of all daily active users.
“Mr. Musk relied on this representation in the Merger Agreement (and Twitter’s numerous public statements regarding false and spam accounts in its publicly filed SEC documents) when agreeing to enter into the Merger Agreement. Mr. Musk has the right to seek rescission of the Merger Agreement in the event these material representations are determined to be false,” the letter said.
On the question of fake accounts and spambots, Musk’s lawyers wrote, “Preliminary analysis by Mr. Musk’s advisors of the information provided by Twitter to date causes Mr. Musk to strongly believe that the proportion of false and spam accounts included in the reported mDAU count is wildly higher than 5%.” The letter also asserted that Twitter includes accounts that have been suspended in its publicly reported quarterly daily active user tallies, contrary to Twitter’s claims that it ceases to count fake or spam users in its mDAU once those users are determined to be fake or spam accounts.
Musk also said Twitter failed to provide financial info he requested on June 17 on “a variety of board materials,” including a working, bottoms-up financial model for 2022″ and a budget for the year. “Twitter has provided only a pdf copy of Goldman Sachs’ final Board presentation,” according to the letter sent Friday.
In addition, Musk’s lawyers argued that Twitter breached the merger deal’s requirement that the company “preserve substantially intact the material components of its current business organization” because Twitter CEO Parag Agrawal in May fired “two key, high-ranking employees” — Kayvon Beykpour, head of the group that builds the social-media app’s core features, and revenue product lead Bruce Falck. The letter also cited Twitter’s July 7 layoff of about one-third of its talent acquisition team.
The letter also included this statement: “Despite public speculation on this point, Mr. Musk did not waive his right to review Twitter’s data and information simply because he chose not to seek this data and information before entering into the Merger Agreement.”
