After months of indecision and bluster, the world's richest man, Elon Musk, has decided that he actually doesn't want to spend $44 billion on a deal to buy Twitter
The infamous tech billionaire's lawyers sent a letter on his behalf stating his intentions to end the agreement, but Twitter board chair Bret Taylor says that the company is planning to fight for the deal in court.
"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," Taylor tweeted. "We are confident we will prevail in the Delaware Court of Chancery."
Twitter opened at $34.60 per share on July 11, down more than 30% since Musk made his announcement in April.
Musk's decision to back out of the deal was revealed as part of a filing with the U.S. Securities and Exchange Commission (SEC). In the letter, Skadden Arps attorney Mike Ringler said that Twitter hasn't given Musk the information that he needs to make the deal. Musk's attorney claims that Twitter was contractually obligated to share the information in question.
"Despite public speculation on this point, Mr. Musk did not waive his right to review Twitter's data and information simply because he chose not to seek this data and information before entering into the Merger Agreement," Ringer wrote. "In fact, he negotiated access and information rights within the Merger Agreement precisely so that he could review data and information that is important to Twitter's business before financing and completing the transaction."
Ringler says that Twitter has failed to provide information regarding spam accounts on the platform, accounts that the company says represent 5% of its daily monetizable active users (mDUAs). Musk claims that bots actually account for closer to 20% of Twitter users.
"Twitter has failed or refused to provide this information," Ringler alleges. "Sometimes Twitter has ignored Mr. Musk's requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information."
Ringler also claimed that Twitter had included "materially inaccurate representations" in the merger agreement.
"While this analysis remains ongoing, all indications suggest that several of Twitter's public disclosures regarding its [monetizable daily active users] are either false or materially misleading," Ringer claims.
Ringler also says that Twitter was contractually required to consult with Musk before making any changes to its ordinary course of business. He argues that the company should have sought Musk's agreement before it carried out a recent wave of layoffs.
It's virtually impossible for Musk to walk away from this fiasco unscathed. As a part of the deal, Musk agreed to pay $1 billion if he backed out. Twitter can also argue against the validity of Musk's reasons for backing out. If Twitter successfully pursues that option, Musk would be required to comply with the original deal.
"Merger agreements are drafted to avoid exactly what Musk is doing, which is try to find some tiny little false thing and then say, 'Whoops, I get to walk away now," Tulane University Law School business law professor Ann Lipton said. "They specifically say things like, you can't back out unless it's not just false, but incredibly false, hugely false, massively damaging to the company."
According to Lipton, Twitter has a "very strong" case against Musk, meaning the company has good reason to take this case all the way to court if need be.
"They would much rather have the $54.20 without a court fight, but it's worth fighting over," Lipton says. "$54.20 seems like an unbelievable deal for Twitter. So there is a lot that they could sacrifice that would still make it worth it in the end if they got to force Musk to close."
While Twitter may have a strong legal case against Musk, experts say that fighting with the billionaire in court could be damaging to the company's image. According to CFRA Research analyst Angelo Zino, a court battle "doesn't bode well for the business prospects of your company, and it further adds uncertainty to the employee base."
"There's no chance it's getting done at $54.20," said Zino. "You're either going to see a 15 to 20% drop in the offer price to get Elon Musk engaged again, or he continues to play the bot card."
Since he announced his plan to buy Twitter, Musk has repeatedly and vocally criticized the platform. If Musk is forced to buy Twitter despite his claims that it isn't worth the money, then he'll be stuck with a company that he's spent the last six months undermining, according to Lipton.
