On Friday, July 8, billionaire Elon Musk called off his deal to buy Twitter.
According to a filing with the Securities and Exchange Commission, the Tesla CEO is “terminating” their $44 billion dollar agreement to buy the social media company, alleging the company is in “breach” of the merger agreement, as reported by The Hollywood Reporter.
Twitter’s Legal Battle With Elon Musk Is Only Getting Started
Friday’s filing is the culmination of a back-and-forth between the SpaceX founder and the social media company that has been going back and forth for the past few months. Musk has been reportedly frustrated with the number of spam and bot accounts on the social media site and has previously tweeted that the deal is “on hold” pending further review of the information.
On Friday, it seems that Musk is not satisfied with the information he received, as he is looking to completely terminate their $44 billion dollar deal.
As reported by USA Today, Skadden Arps attorney Mike Ringler said in a letter to Twitter’s chief legal officer that “Twitter has not complied with its contractual obligations.” The letter says that Twitter executives have not provided Musk and his team with enough information regarding bot and spam accounts to perform his own analysis of the data.
The Hollywood Reporter shared more information about the letter, claiming that Musk wants to back out of the deal “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).”
The letter continues: “In short, Twitter has not provided information that Mr. Musk has requested for nearly two months notwithstanding his repeated, detailed clarifications intended to simplify Twitter’s identification, collection, and disclosure of the most relevant information sought in Mr. Musk’s original requests.”
The letter goes on to say: “While Twitter has provided some information, that information has come with strings attached, use limitations or other artificial formatting features, which has rendered some of the information minimally useful to Mr. Musk and his advisors.”
Since Musk’s takeover was announced, there was a hiring freeze at the company and several executive employees were laid off. Musk claims that this was all done without first consulting him, and that is also a breach of their agreement.
Does Elon Musk Owe Twitter $1 Billion Dollars Now?
In a separate SEC filing dated April 25, 2022, Elon Musk agreed to pay Twitter a $1 billion dollar termination fee if he doesn’t go through with the deal. It’s likely that Musk is going to argue that he won’t have to pay the termination fee because Twitter is in breach of the agreement, accusing them of lying about the number of bot and spam accounts they reported in the SEC filing.
However, as noted by Tech Crunch, it’s possible that Twitter would have to pay the same fee under specified conditions. As stated in the agreement:
“The Merger Agreement also provides that Twitter, on one hand, or Parent and Acquisition Sub, on the other hand, may specifically enforce the obligations under the Merger Agreement, except that Twitter may only cause Mr. Musk’s equity financing commitment to be funded in circumstances where the conditions to Parent’s and Acquisition Sub’s obligations to consummate the Merger are satisfied and the debt and margin loan financing is funded or available. As described above, if the conditions to Parent’s and Acquisition Sub’s obligations to complete the Merger are satisfied and Parent fails to consummate the Merger as required pursuant to the Merger Agreement, including because the equity, debt and/or margin loan financing is not funded, Parent will be required to pay Twitter a termination fee of $1.0 billion.”
This is what the SEC filing says about the circumstances requiring Twitter to pay Musk a billion-dollar fee:
“Upon termination of the Merger Agreement under specified limited circumstances, Twitter will be required to pay Parent a termination fee of $1.0 billion. Specifically, this termination fee is payable by Twitter to Parent because (1) Twitter terminates the Merger Agreement to allow Twitter to enter into a definitive agreement for a competing acquisition proposal that constitutes a Superior Proposal; or (2) Parent terminates the Merger Agreement because the Board recommends that Twitter’s stockholders vote against the adoption of the Merger Agreement or in favor of any competing acquisition proposal. This termination fee will also be payable by Twitter to Parent in the event that, generally, (1) a competing acquisition proposal for 50% or more of the stock or consolidated assets of Twitter has been publicly announced and not withdrawn, (2) the Merger Agreement is terminated because Twitter’s stockholders fail to adopt the Merger Agreement or because Twitter materially breaches the Merger Agreement, and (3) within twelve months of such termination of the Merger Agreement, Twitter enters into a definitive agreement providing for a competing acquisition proposal for 50% or more of the stock or consolidated assets of Twitter and such acquisition is subsequently consummated.”
Twitter Board Chair Announces They Are ‘Committed’ To Closing The Transaction
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
On Friday evening, Twitter board chair Bret Taylor tweeted, “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.”
In a follow-up article from The Hollywood Reporter regarding the termination of the agreement, Wedbush analysts called Musk’s decision a “disaster scenario for Twitter,” and predicted that shares of the company would open in the $25 to $30 range on Monday morning. THR reported that shares of Twitter were down 7 percent in extended-hours trading Friday, after having opened at $37.51.
The analysts wrote: “From the beginning, 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.”