Tesla CEO Elon Musk has formally informed Twitter that he is ending his $44 billion bid to buy the social media platform. “Twitter is in material breach of several provisions”, Musk’s lawyer explained.
Musk terminates deal with Twitter, citing ‘material violation of multiple provisions’
Tesla and SpaceX CEO Elon Musk’s attorney sent a letter to Twitter Inc on Friday in which Musk offered to buy the social media platform. The letter, filed with the US Securities and Exchange Commission (SEC), states:
Mr Musk is terminating the merger agreement because Twitter is in material breach of several provisions of that agreement.
The letter claims that Twitter made “false and misleading representations” and that Musk relied on them when he signed the merger agreement between Twitter and his companies: X Holdings Eye Inc. and X Holdings II Inc.
The lawyer explained that Twitter did not comply with its contractual obligations to provide Musk with the necessary data.
For nearly two months, Musk has sought the data and information needed to “make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform,” the lawyer elaborated:
Sometimes Twitter has ignored Mr Musk’s requests, sometimes denied them for reasons that seem inappropriate, and sometimes it claims to have complied by giving Mr Musk incomplete or unhelpful information.
The letter acknowledges that Twitter has provided certain information. However, “this information came with strings attached, usage limitations or other artificial formatting features, which rendered some of the information minimally useful to Mr. Musk and his advisers,” it notes.
In early June, Musk’s attorney notified Twitter of the material breach and warned that Musk could terminate the deal. “Any treatment period granted to Twitter under the merger agreement has now expired,” the lawyer said.
In addition, Musk’s lawyer alleged that Twitter made a “material misrepresentation”, particularly regarding the social media company’s claim that “less than 5%” of its MDAUs are false or spam accounts. Twitter defines “Monetizable Daily Active Use or Users (MDAUs) as Twitter users who have logged into and accessed Twitter through Twitter.com or the Twitter application on any given day that are capable of serving advertisements. “
Based on Musk’s own preliminary analysis:
All indications suggest that many of Twitter’s public disclosures regarding its mDAU are either false or materially misleading… The proportion of false and spam accounts included in the reported mDAU count is wildly over 5%.
In addition, “Twitter’s disclosure that it stops counting fake or spam users in its mDAU when it determines those users are fake,” the lawyer said.
The letter further states that Twitter has deviated from its obligation to “substantially maintain the physical components of its existing business organization”. Since the deal was signed with Musk, the social media company has fired key, high-ranking employees and announced on July 7 that it was laying off a third of its talent acquisition team. Apart from this, three officers have resigned.
Noting that Twitter did not receive consent to these changes, Musk’s lawyer alleged that the company’s action further amounts to a material breach of the merger agreement with the Tesla CEO.
The letter concludes:
For all these reasons, Mr. Musk is hereby transferred to X Holdings I, Inc. exercise the right to terminate the merger agreement and to abandon the transaction required by it.
Musk and Twitter had originally agreed on a $1 billion termination fee when the agreement was signed. However, an allegation of material infringement and any subsequent lawsuit can complicate the charge.
Twitter board member Brett Taylor tweeted on Friday in response to Musk’s termination of the merger deal:
The Twitter board is committed to closing the transaction on a price and terms agreed with Mr. Musk and plans to take legal action to enforce the merger agreement.
He added: “We are confident that we will prevail in the Delaware Court of Chancery.”
What do you think about Elon Musk’s termination of the merger agreement with Twitter? Let us know in the comments section below.
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