Billionaire Elon Musk wants to
end his $44 billion deal to buy Twitter, according to a letter sent by a lawyer
on his behalf to the company’s chief legal officer Friday.
However, Twitter’s board chair Bret
Taylor said the company is still committed to closing the deal at the
agreed-upon price and plans to pursue legal action to enforce the agreement.
“We are confident we will prevail
in the Delaware Court of Chancery,” Taylor wrote.
Twitter shares were down about 6%
after hours on Friday.
In the letter, disclosed in a
Securities and Exchange Commission filing, Skadden Arps attorney Mike Ringler
said that “Twitter has not complied with its contractual obligations.”
Ringler claimed that Twitter did
not provide Musk with relevant business information he requested, as Ringler
said the contract would require. Musk has previously said he wanted to assess
Twitter’s claims that about 5% of its monetizable daily active users (mDAUs)
are spam accounts.
“Twitter has failed or refused to
provide this information,” Ringler claimed. “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.”
Ringler also charged in the
letter that Twitter breached the merger agreement because it allegedly contains
“materially inaccurate representations.” This accusation is based on Musk’s own
preliminary review of spam accounts on Twitter’s platform. Twitter has said
it’s not possible to calculate spam accounts from solely public information and
that a team of experts conducts a review to reach the 5% figure.
“While this analysis remains
ongoing, all indications suggest that several of Twitter’s public disclosures
regarding its mDAUs are either false or materially misleading,” Ringer alleged.
“Despite public speculation on
this point, Mr. Musk did not waive his right to review Twitter’s data and
information simply because he chose not to seek this data and information
before entering into the Merger Agreement,” Ringer added. “In fact, he
negotiated access and information rights within the Merger Agreement precisely
so that he could review data and information that is important to Twitter’s
business before financing and completing the transaction.”
He also claimed Twitter breached
its obligations under the agreement to get Musk’s consent before changing its
ordinary course of business, pointing to recent layoffs at the company.
Under the terms of the agreement,
Musk agreed to pay $1 billion if he backs out. However, as Twitter’s board
chair indicated they would do, the company can seek to hold Musk to his
original deal by suing him for walking away if they dispute that his reasoning
should let him out of the contract.
The stock has fallen considerably since the
board announced it had accepted his offer to buy the company at $54.20 per
share. On the day of that announcement, the stock ended the trading day at
$51.70 per share. Twitter shares sat at $36.81 as of Friday’s market close.
Musk is apparently paying attention
to the stock price, too, according to the letter, “and is considering whether
the company’s declining business prospects and financial outlook constitute a
Company Material Adverse Effect giving Mr. Musk a separate and distinct basis
for terminating the Merger Agreement.”
