Elon Musk, the Chief Executive Officer of Tesla and the world’s richest person, has noted that he is terminating his $44 billion deal to buy Twitter.
According to Elon, the social media company had breached multiple provisions of the merger agreement.
Twitter’s Chairman, Bret Taylor, said on the micro-blogging platform that the board planned to pursue legal action to enforce the merger agreement.
“Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk,” Bret wrote.
In a filing, Musk’s lawyers said Twitter had failed or refused to respond to multiple requests for information on fake or spam accounts on the platform, which is fundamental to the company’s business performance.
“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,” the filing read.
Musk also said he was walking away because Twitter fired high-ranking executives and one-third of the talent acquisition team, breaching Twitter’s obligation to “preserve substantially intact the material components of its current business organization”.
According to some reports, Musk’s decision is likely to result in a protracted legal tussle between the billionaire and the 16-year-old San Francisco-based company.
Disputed mergers and acquisitions that land in Delaware courts more often than not end up with the companies re-negotiating deals or the acquirer paying the target a settlement to walk away, rather than a judge ordering that a transaction be completed. That is because target companies are often keen to resolve the uncertainty around their future and move on.
Twitter, however, is hoping that court proceedings will start in a few weeks and be resolved in a few months, according to a person familiar with the matter.
Ann Lipton, associate dean for faculty research at Tulane Law School said: “I’d say Twitter is well-positioned legally to argue that it provided him with all the necessary information and this is a pretext to looking for any excuse to get out of the deal”.
Twitter’s shares surged after Musk took a stake in the company in early April, shielding it from a deep stock market sell-off that slammed other social media platforms.
However, after he agreed on April 25 to buy Twitter, the stock within a matter of days began to fall as investors speculated Musk might walk away from the deal. With its tumble after the bell on Friday, Twitter was trading at its lowest since March.
The announcement is another twist in a “will-he-will-he-not” saga oafter Musk clinched the deal to purchase Twitter in April but then put the buyout on hold until the social media company proved that spam bots account for less than 5% of its total users.
The contract calls for Musk to pay Twitter a $1 billion break-up if he cannot complete the deal for reasons such as the acquisition financing falling through or regulators blocking the deal. The break-up fee would not be applicable, however, if Musk terminates the deal on his own.
Some employees expressed disbelief and exhaustion on Friday, publicly posting memes on Twitter, such as of a rollercoaster ride and a baby screaming into a phone, in apparent commentary on the breakup. Employees have worried about the deal will mean for their jobs, pay and ability to work remotely, and many have expressed skepticism about Musk’s plans to loosen content moderation.
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