Elon Musk wants to terminate $44bn Twitter deal but is it too late to pull out?
Musk posted on Twitter to explain why he had backed out of the deal and said it was because Twitter failed to provide enough information on the number of spam and fake accounts. The SpaceX Founder has previously said the deal was on hold as he waiting to receive this data.
In a letter filed with the US Securities and Exchange Commission in May, Musk’s lawyer said Twitter had failed or refused to provide this information.
“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,” the letter reads.
However, Twitter Chairman, Bret Taylor tweeted to say that Twitter plans to pursue legal action in order to enforce the purchase.
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
Following the announcement, Twitter shares fell by 7%.
Is it too late for Musk to pull out?
Bloomberg reported on Sunday night that Twitter had assembled a legal team to sue Musk.
Brian Quinn, Associate Professor at Boston College law school, was also quoted in the Guardian saying that he expects Twitter to file a lawsuit as early as today.
“They will likely be asking for a declaratory judgment that they are not in violation of the contract. Also, they will ask for an order from the court that Musk specifically performs his obligations under the agreement,” said Quinn.
Under the terms of the agreement, Twitter can reportedly ask a judge for “specific performance”, which would compel Musk to buy the company for the $44bn he agreed to in April.
The BBC reports that the original merger agreement also includes a $1bn (£830m) break-up fee, which Twitter could seek from Musk for walking away from the deal.
Quinn also said that Musk’s information requests on spam accounts were not “reasonable” and would not be accepted by the court.
However, Mike Rhodes, the Founder of ConsultMyApp, says that Twitter has failed to properly cooperate with Musk and that whatever happens, Twitter will be the real loser.
He comments: “From day one, it was easy to question Musk’s motivations for buying Twitter. The potential issues were particularly clear in April regarding how to identify bot/fake account numbers, as this threatened to seriously undermine Twitter’s valuation.
“Musk’s suspicions, it seems, were validated, as Twitter has been reluctant to release the calculation behind its own estimates, and Musk has jumped on this as his excuse to exit the deal.
“Musk and his lawyers have always been clear on the need for data to judge the number of fake accounts. Yet Twitter has failed or refused to provide this information, instead opting for incomplete or unusable information.
“Last month, for instance, Twitter provided Musk with its “firehose” data in an attempt to counteract claims that the entrepreneur was being denied the information he was legally entitled to as part of the deal. Twitter’s firehose provides a real-time stream of the millions of public tweets posted daily on the platform, as well as information on the accounts behind them. In sharing this data, Twitter made an unprecedented move, creating a number of privacy concerns and competitive risks, given Musk’s recent tweets on violating NDAs.
“Yet the data has not put to bed the issue of automated accounts, and it is unlikely that Musk was ever going to be able to deduce anything from the data that the platform itself could not. In the end, it seems to have been another case of Twitter offering up information to Mr Musk in a rather convoluted manner, rather than providing real proof of Twitter’s business and financial performance.
“The failure to cooperate with Musk seems to be rather ironic and misguided, given that one of the chief reasons the entrepreneur gave for taking over Twitter was his belief that he could add business value by removing spam bots.
“As for the biggest loser, it is clearly Twitter. Musk is set to lose $1bn, pennies in the grand scheme of things, but Twitter has lost valuable employees, suffered managerial disruption, and has had suspicions raised around the true DAU/MAU figures of “real” people.
“Given the DAU/MAU numbers are directly correlated to advertising revenues and are seen as a general health indicator for any app, if these were subsequently found to be mispresented by the business, the investor backlash could cause massive shockwaves.
“Musk has got what he wanted – a bit of attention and to aggravate the Silicon Valley elite – but Twitter has had some very painful truths exposed which could have a very significant long-term impact on the business.”