Twitter chairman said that the company plans legal action after Elon Musk informed the company’s board that he is terminating his $44 billion merger agreement.
Bret Taylor, chairman of the Twitter board of directors, wrote that the social media platform 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. We are confident we will prevail in the Delaware Court of Chancery.”
Earlier Friday, Musk’s attorneys filed a letter with the SEC (read it here) accusing Twitter of being in material breach of the transaction agreement. They wrote that the company, after repeated requests for data on its accounts, “has failed or refused to provide this information”
His attorneys wrote that “to the extent that Twitter has underrepresented the number of false or spam accounts on its platform, that may constitute a Company Material Adverse Effect under Section 7.2(b)(i) of the Merger Agreement. Mr. Musk is also examining the company’s recent financial performance and revised outlook, and is considering whether the company’s declining business prospects and financial outlook constitute a Company Material Adverse Effect giving Mr. Musk a separate and distinct basis for terminating the Merger Agreement.”
Musk’s move to server the deal is not unexpected. He clinched the agreement in late April for $44 billion, or $54.20 a share just before markets plunged. Twitter is trading at around $34 right now. Musk had declared as early as mid-May that the deal was “on hold,” citing a lack of clarity around the number of bots, for robots, or fake accounts. He has continued to beat that drum and reports as recently as indicated he was about to definitively back out.
Twitter has steadfastly argued that the billionaire Tesla founder is not legally entitled to call off the deal without a solid reason (and it doesn’t agree that spam account information is one) even if he’s willing to pay the $ billion breakup fee.
Twitter says it has provided Musk with the information he has requested.
Musk vowed to bring substantial changes to Twitter, reversing its decision to permanently suspend Donald Trump’s account, a decision made in the wake of the January 6, 2021 attack on the Capitol. But his vision for the company hadn’t crystallized.
“This is a disaster scenario for Twitter,” said Wedbush analyst Dan Ives. “Now the company will battle Musk in an elongated court battle to recoup the deal and/or the breakup fee of $1 billion at a minimum.” He predicted Twitter stock will likely trade in the $25-$30 range when it opens Monday.
“This soap opera has seen many twists and turns and now eventually Twitter goes back to the drawing board,” he said. “This was always a head scratcher to go after Twitter at a $44 billion price tag for Musk and never made much sense to the Street, now it ends (for now) in a Twilight Zone ending with Twitter’s Board back against the wall and many on the Street scratching their head around what is next.”
Negotiating a cheaper deal for Musk may be the most likely outcome. Even if Twitter has a strong legal hand, lawsuits are expensive.
Jill Goldsmith contributed to this report