The world’s richest man and leading officer of Tesla and SpaceX, Elon Musk, has just stepped down from his $44 billion Twitter deal. He will no longer complete his acquisition and wishes to terminate the deal right away.
Back in April, Musk put forward an offer for the micro-blogging site, and after much back and forth, the parties involved came to a mutual agreement. Musk had officially purchased Twitter and was set to lend his leadership to the company.
He saw untapped potential within the firm and wanted to enforce fairer freedom of speech across the platform. Obviously, his pervasive tweets weren’t enough to achieve this, so he sought out the company itself.
After everything was set in stone with the merger to close soon, things started to fall apart. Mr. Musk’s main gripe, and the basis of his pullout, with the deal was Twitter’s lack of transparency regarding fake bot/spam accounts. Everyone knows bots are in every corner of the internet, including in all social media sites.
Twitter reported that out of the over 1.3 billion total accounts on the site, only about 5% are fake. This statistic did not sit right with Musk who immediately called out the company and said this figure was incorrect and misleading.
Over time, Twitter’s alleged misreporting caused further and further cracks between the company and Musk, which then ultimately lead to today’s filing. Elon Musk has officially filed to terminate his deal with Twitter citing ‘material breach of multiple provisions‘ as the reason.
For nearly two months, Mr. Musk has sought the data and information necessary to make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform. Twitter has failed or refused to provide this information. – Musk’s legal team
Moreover, Musk also highlighted the recent layoffs at the company when Twitter fired two executives and put a momentary, but indefinite, hold on hiring. This is apparently against the agreement signed for the deal, since it included an obligation to gain Musk’s consent before making any internal changes in the company, steering away from ‘ordinary course of business‘.
Musk’s legal team sent a letter to Twitter’s chief security officer this morning, informing them of his decision to back down from the deal. Here’s an excerpt from the end of the letter:
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.
One might think that giving up on your $44 billion baby that you fought so hard to acquire just months ago seems immature and hasty. You’d be right. From the start, it has always felt like Mr. Musk wanted Twitter as his play toy to chant freely about corporate independence, rather than to actually help the company grow via a feasible business plan.
Investigating the prevalence of fake bot accounts on the site was something Musk easily could’ve done prior to closing the deal. After all, when you go to spend a large sum of cash—in this case nearly $50 billion—on a new purchase, you at least research it once.
Regardless, Twitter’s board has obviously not taken well to this. They plan on pursuing legal action to enforce the merger, and for good reason. Musk offered $54.20 for every share when the actual stock price was at $36.81, so why would the shareholders not want to cash in?
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
The board also insists that Twitter has provided Musk with everything he has asked for, including access to every tweet, and cooperated with him on multiple occasions. Whereas, Musk is of the opinion that not enough information, or at least accurate information, was disclosed.
Since Mr. Musk is the one filing for the breakup, the ball is in his court (no pun intended). Unless the billionaire can prove to the judges why his termination of the deal was not only the right course of action, but also legal, he will likely be hit with numerous fines—but, worse—have to actually buy Twitter.
On the other hand, if the court does rule in Musk’s favor, Twitter will have to pay a $1 billion breakout fee which was agreed upon beforehand; vice-versa if Twitter prevails. The fact that a possible breakout was already on his mind well before shit hit the fence, should tell you all about Mr. Musk’s plans for the world’s most prominent social media platform.
You can check out the full SEC filing for the breakup here.