Billionaire entrepreneur Elon Musk has terminated his $44 billion deal to acquire Twitter, claiming that the social media giant failed to comply with its obligations in the merger agreement.
In response, Twitter said it is committed to closing the transaction on the price and terms agreed upon with Musk and plan to pursue legal action to enforce the merger agreement. It is confident it will prevail in the Delaware Court of Chancery.
Twitter could have pushed for a $1 billion breakup fee that Musk agreed to pay under these circumstances. But it plans to pursue legal action to complete the deal.
In a letter to Twitter, which was disclosed in an SEC filing on Friday, Musk’s legal team Skadden, Arps, Slate, Meagher & Flom LLP said that Twitter has not complied with its contractual obligations.
Musk’s legal team has claimed that Twitter did not provide Musk with relevant business information. Musk previously wanted to assess Twitter’s claims that about 5% of its monetizable daily active users are spam accounts.
Musk’s legal team claimed that Twitter has failed or refused to provide this information. Sometimes Twitter has ignored Musk’s requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Musk incomplete or unusable information.
According to Musk’s legal team letter, Twitter also did not comply with its obligations under the merger agreement to seek and obtain consent before deviating from its obligation to conduct its business in the ordinary course and “preserve substantially intact the material components of its current business organization.”
Twitter’s conduct in firing two key, high-ranking employees, its Revenue Product Lead and the General Manager of Consumer, as well as announcing on July 7 that it was laying off a third of its talent acquisition team, implicates the ordinary course provision.
Twitter has also instituted a general hiring freeze which extends even to reconsideration of outstanding job offers. Moreover, three executives have resigned from Twitter since the Merger Agreement was signed: the Head of Data Science, the Vice President of Twitter Service, and a Vice President of Product Management for Health, Conversation, and Growth.
Musk’s legal team letter alleged that Twitter has not received Parent’s consent for changes in the conduct of its business, including for the specific changes. The company’s actions therefore constitute a material breach of the merger Agreement.
It was in late April that Twitter agreed to accept Musk’s offer for $54.20 per share in cash and to become a privately held company.
However, in May, Musk put the Twitter acquisition on hold, demanding further information about spam and fake accounts on the microblogging site. Musk then said he suspected that they make up at least 20 percent of users, while Twitter continued to admit that spam/fake accounts represent only about 5 percent of users.
However, later, Twitter complied with Musk to provide him access to the data he asked for.
This week, Twitter officials reiterated that spam accounts make up less than 5% of the company’s daily monetizable users.
Meanwhile, Twitter’s board of directors in mid June had unanimously recommended that its shareholders vote in approval of the merger.
The deal was expected to close in 2022.
TWTR closed Friday regular trading at $36.81 down $1.98 or 5.10 percent. In the after-hours trade, the stock further dropped $1.77 or 4.81 percent.
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