Elon Musk, the CEO of Tesla and the world’s wealthiest person, said on Friday that he was cancelling his $44 billion deal for Twitter because Twitter had violated a number of contractual provisions.
Twitter chairman, Bret Taylor, said on Twitter that the board was going to enforce the merger agreement by taking legal action.
Under these conditions, Twitter might have demanded that Musk pay the $1 billion US breakup fee he had committed to. Instead, it appears poised to engage in litigation over the transaction, which the company’s board has approved and which CEO Parag Agrawal has stated he will complete.
In a brief, Musk’s attorneys stated that Twitter has either failed to reply to several requests for information on fraudulent or spam accounts on the site or refused to do so. This information is essential to the operation of the company’s business. Elon Musk’s attorneys cover a number of topics in the brief, including recent layoffs of Twitter employees as well as the recruiting freeze.
Less than 5% of Twitter’s user accounts are false, the social media platform has repeatedly claimed in recent weeks. The multibillionaire and his team believe that the network is lying, which is detrimental to the company’s viability and worth.
For weeks, industry insiders have speculated that Elon Musk may try to back out of the deal or renegotiate a cheaper price for the offer.
A Court Battle
In the wake of Musk’s decision, the billionaire and the 16-year-old San Francisco-based corporation are likely to engage in a protracted court fight.
Most of the time, when Delaware courts get involved in a dispute about a merger or acquisition, the companies re-negotiate the deal or the acquirer pays the target a settlement to walk away, rather than the judge ordering the deal to be done. This is due to the fact that target organizations are typically eager to resolve their future uncertainty and move forward. According to a person familiar with the situation, Twitter is hoping that court procedures will begin in a few weeks and be finished in a few months.
It would appear that Musk’s interest in purchasing Twitter first surfaced in late March. That’s when Twitter claims he contacted members of its board, including co-founder Jack Dorsey, and informed them that he was buying up shares in the firm and was interested in either joining the board, taking Twitter private, or launching a competitor.
Twitter’s stock rose when Musk bought a stake in the firm in early April, insulating it from a stock market sell-off that hit other social media companies. However, after Musk agreed to buy Twitter on April 25, the stock price dropped quickly as investors feared he would back out of the arrangement.
The Securities and Exchange Commission (SEC) announced on April 29 that Musk sold 9.6 million Tesla shares for a total of $8.4 billion. Musk claims he raised $7.14 billion from Oracle co-founder Larry Ellison and Saudi prince Al-Walid bin Talal on May 5.
Musk Planting The Seeds Of Doubt
The situation then becomes increasingly unclear. Elon Musk first said on May 10 that he would let Donald Trump back into the social network. Trump had been kicked off when his supporters attacked the Capitol on January 6, 2021.
Because of his concerns regarding the actual amount of bogus accounts on the social network, he announced on May 13 that he would be halting the takeover. This caused the share price of Twitter to drop by almost 20 percent. On the same day, he stated that he was “still committed” to purchasing the network despite his earlier comments.
Friday, the billionaire declared he will back out of the $44 billion deal to buy the social networking platform, citing concerns over spam accounts and accusing the firm of breaching the merger agreement.
Elon Musk’s net worth, which is mostly derived from Tesla stock, has decreased by $65 billion in the months after his announcement that he intended to purchase Twitter.
As Musk offered billions of dollars’ worth of his Tesla stock as collateral for the takeover, several financial experts have argued that the financial losses that Tesla has been experiencing will make it more difficult for Musk to secure funding for the Twitter deal.
It’s not clear if Musk’s decision to pull out was influenced by the deal’s financing.