Twitter has received a letter from Elon Musk saying he’s ending the agreement to buy the social media company for $44 billion.
Twitter still plans to close the deal, so Musk’s move sets up a legal battle between the company and the billionaire. The company’s ownership also affects the future of Twitter. The company has struggled to attract a broader user base and ad dollars.
Twitter’s management plans legal action to enforce the agreement.
Friday, Billionaire Elon Musk said he’s pulling out of a $44 billion deal to buy Twitter. Thus adding another twist to the mercurial entrepreneur’s effort to present himself as the guardian of free speech on the popular social network.
Musk said in a letter sent by his lawyer that Twitter breached multiple parts of their agreement by not providing enough information about how it estimates the number of spam accounts on Twitter.
The company reported fewer than 5% of its 229 million daily users were fake or spam-focused. Musk, however, claims this may not be an accurate number.
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The letter to Twitter from Musk lawyer Mike Ringler said that Twitter “appears to have made false and misleading representations.”
On Friday, Bret Taylor, chairman of Twitter’s board of directors, tweeted that the company still intends to close the deal. “The Twitter Board is committed to the price and terms agreed upon….. and plans to pursue legal action to enforce the merger agreement,” Taylor tweeted.
Musk’s letter also outlines missing information about the company’s financial conditions and how Twitter calculates daily users who can see ads. The letter states that Twitter’s data is “minimally useful.”
Musk also alleged that early analysis indicates some of Twitter’s public disclosures of daily users are “either false or materially misleading.”
The letter also alleges that Twitter breached another part of the agreement as the company had to seek and obtain consent before firing vital executives, layoffs, and hirings.
The decision to terminate the deal has ended a tumultuous period for Twitter. In early April, the company found itself targeted as Musk announced a roughly 9% stake in the company.
On the point of joining Twitter’s board of directors, Musk pulled out, proposing to take the company private after buying the entire company. The board accepted Musk’s offer after he put together a substantial leveraged financing deal.
Dan Ives, a Wedbush Securities analyst, tweeted Musk’s move is a “disaster scenario for Twitter and its Board.”
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Carolina Milanesi, a principal analyst at Creative Strategies, said forcing Musk to buy Twitter could be a mistake for the social network.
“What company wants to be owned by someone who does not want it?” Milanesi said. “I personally never believed Musk had a concrete and viable plan to reinvigorate Twitter and its revenue.”
Twitter has struggled to compete for ad dollars and users with more extensive social networks like Facebook and TikTok.
The company’s calculation of daily users who can see ads hasn’t always been accurate, either. In April, Twitter revealed it inflated its daily active user numbers since 2019 because of an error involving how it calculated linked accounts.
The deal’s potential collapse could also prompt the Securities and Exchange Commission to scrutinize Musk further, who fell afoul of regulators for tweeting about a plan to take Tesla private. Musk’s disclosure of his stake in Twitter was filed late and on the wrong form.
Musk had railed against the SEC, which alleged that Musk and Tesla had made “false and misleading” statements when he tweeted on August 7, 2018, that he had “funding secured” to take the electric-car company private.
The SEC struck a deal with Musk and Tesla that required fines of $20 million each. It also needed Musk’s tweets to be vetted by a lawyer if they contained material information regarding the company. In April, a federal judge denied Musk’s request to have the oversight lifted.
Investors never wholly believed Musk would buy Twitter. Though the company’s shares jumped after Musk unveiled his stake, they didn’t reach the $54.20 price he pledged to pay.
(The price includes the number 420, slang for marijuana, and a running Musk gag. His proposal to take Tesla private, suggested a deal for $420 a share.)
Twitter shares immediately fell nearly 7% in after-hours trading to $34.25 per share on news that Musk wanted to end the deal.
Meanwhile, Twitter’s general counsel asked employees not to tweet, Slack or discuss the deal now that the company’s board of directors has threatened legal action against Musk.