In an on-again, off-again romance that never made it to the altar, the breakup is already getting bitter. Within hours of the formal notice from Elon Musk that he was not going to buy Twitter for $44 billion after all, the company said it would not take rejection lightly. “We are committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plan to pursue legal action to enforce the merger agreement,” the company announced in a one-paragraph statement.
The New York Times indicated that Twitter needs the deal to go through. “The stakes are high. The most valuable part of Twitter right now is its acquisition agreement with Mr. Musk. Its shares are down about 24 percent since April, and trade well below the price agreed with Mr. Musk. Twitter’s stock fell 4 percent in premarket trading on Friday,” the Times noted. “To accept less than the price it originally negotiated with Mr. Musk could expose Twitter to shareholder lawsuits. So while litigation could be costly, losing the deal may be even worse.” That logic was repeated by Daniel Ives, senior equity research analyst at Wedbush Securities, according to USA Today. “This is a disaster scenario for Twitter and its Board as 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 said. Musk said Twitter did not play ball in good faith, particularly surrounding the issue of fake accounts. Twitter has said it estimates that fake, spam and bot accounts make up about 5 percent of its users. Musk believes the real number is much higher. In the letter to the Securities and Exchange Commission saying the deal was toast, Musk said Twitter did not give him all the facts he needed to evaluate the company’s financial soundness. The issue of fake accounts was front and center among the grievances Musk cited. “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,” the letter said. “While … the Merger Agreement requires Twitter to provide Mr. Musk and his advisors all data and information that Mr. Musk requests ‘for any reasonable business purpose related to the consummation of the transaction,’ Twitter has not complied with its contractual obligations.” According to the letter, Twitter failed to provide information related to the company’s process for auditing spam and fake accounts as well as material regarding Twitter’s financial condition. “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 [monetizable daily active users] count is wildly higher than 5%,” the letter said. This article appeared originally on The Western Journal.
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. We are confident we will prevail in the Delaware Court of Chancery.— Bret Taylor (@btaylor) July 8, 2022