“Twitter’s board of directors is committed to completing the transaction at the price and terms agreed with Mr. Musk and plans to take legal action to enforce the merger agreement,” Twitter CEO Bret Taylor said in a tweet on Friday, echoing previous statements by Twitter’s CEO that it intended to go through with the deal. “We are confident that we will prevail in the Delaware Court of Chancery.”
Twitter shares fell almost 6% in after-hours trading on Friday immediately after the news, after ending the day down 5%. Tesla shares are up more than 1% in after-hours trading.
Still, Musk’s lawyer claimed in Friday’s letter that Twitter had “failed to meet its contractual obligations” to provide Musk with sufficient data and said Twitter had “appeared to have made false and misleading statements on which Mr Musk relied” when he agreed to act.
“For nearly two months, Mr. Musk has been seeking the data and information necessary to ‘perform an independent assessment of the prevalence of fake or spam accounts on the Twitter platform,'” the Friday letter said. “This information is critical to Twitter’s business and financial performance and necessary to complete the transactions contemplated by the merger agreement.”
It continues: “Twitter failed or refused to provide this information. At times, Twitter has ignored Mr Musk’s requests, other times it has refused them for seemingly unjustified reasons, and other times it has claimed to fulfill them while giving Mr Musk incomplete or useless information.”
Twitter has repeatedly said it was cooperative in sharing information with Musk to complete the deal on the terms originally agreed.
Twitter’s shares are trading around $36, down nearly 30% from their price on the day Musk and Twitter announced the acquisition, and well below the $54.20 a share Musk was offering, suggesting suggesting deep skepticism among investors about closing the deal at the agreed price. The declining value could also be one of the reasons why Musk is no longer interested in the deal, analysts said.
What could happen next
By accusing Twitter of violating the merger agreement, Musk appears to be arguing that if the acquisition fails, he shouldn’t be at risk for the $1 billion termination fee stipulated in the terms of the deal, according to Carl Tobias, a law professor at the university of Richmond.
“The way these things usually work is that if there’s a billion-dollar break-up fee and you’re the one trying to acquire, then that’s enforced against you,” Tobias said, “unless there’s some kind of material breach.” or whatever reason that can be advanced to persuade a court that Twitter, for example, is not honoring the deal.”
Musk’s attorney alleged in Friday’s letter that Musk requested, but did not receive, information from Twitter such as the daily count of monetizable daily active users for the past eight quarters and access to “the sample set used and the calculations performed,” to determine that spam and fake accounts account for less than 5% of the monetizable daily user base. Twitter has stated that it relies on its users’ public and private information, such as ISP numbers and geographic data, to count bots on the platform.
Despite signing a binding acquisition agreement, Friday’s letter also alleges that Musk “precisely negotiated access and information rights within the merger agreement so that he could obtain data and information critical to Twitter’s business prior to financing and closing the transaction.” could check”.
Twitter will likely ask two things from the court in its lawsuit against Musk, said Brian Quinn, a law professor at Boston College. Twitter is expected to seek a ruling that it did not breach its contract with Musk, and will likely seek a court order ordering Musk to complete the acquisition, he said.
In evaluating Musk’s claims, Quinn added, the court will likely consider the information Twitter has provided to date and whether Musk’s requests for further disclosures are reasonable and necessary to close the deal — for example, whether Musk’s Desired information is needed to obtain regulatory approvals or funding commitments.
Even if a legal battle lingers, the two sides will likely continue to talk, Quinn said, and the situation could resolve through a renegotiated sale price. That type of resolution is common in merger disputes, he said, citing the recent deal between luxury brands Luis Vuitton and Tiffany that went to court but ultimately struck at a lower price.
Musk’s claim that he needs more information “is hard to argue with,” Quinn added. “A Delaware judge will be fairly familiar with how these transactions work and what is normal and what is not.”