Twitter has threatened to sue Elon Musk, the CEO of Tesla if he cancels the agreement to buy the microblogging platform. The development comes days after reports of drawdown from Musk and other investors due to apprehension over the company’s business prospects.
On Friday, Musk and co. terminated the agreement almost two months after putting the acquisition on hold by casting doubt over Twitter’s disclosure of bot/spam/fake account data. And it seems like access to Twitter’s firehoseOpens a new window , i.e., live stream of tweet data, hasn’t helped ease those concerns.
The $44 billion acquisition of Twitter entails a $1 billion termination feeOpens a new window owed by either one who reneges on the deal. In an SEC filing late last week, the billionaire CEO of Tesla contended that Twitter didn’t adequately comply with its contractual obligations, which include provisioning the correct data to assess the user-related health of the company.
The filingOpens a new window by Musk’s camp reads, “Mr. Musk is terminating the Merger Agreement because Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect (as that term is defined in the Merger Agreement).â€
“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 filing continues, with Musk alleging Twitter provided “materially inaccurate representations.â€
Twitter in May said its platform has less than 5% of bots/spam/fake accounts. However, Musk feels the number is “wildly higher than 5%.†Musk’s filing also alleges Twitter counts suspended accounts (due to being fake/spam ones) in its quarterly monetizable daily active users (mDAU) report. Additionally, Twitter’s process for calculating mDAU is arbitrary and ad hoc.
See More: Elon Musk’s Twitter Acquisition Hangs In Balance As Layoffs Kick In
Musk is also claiming non-compliance with the agreement when Twitter fired two executives without consulting him and is exploring whether Twitter as a business could lead to Company Material Adverse Effect, which would grant him a “separate and distinct basis for terminating the Merger Agreement.â€
While the latter two claims are still in the works, Musk’s claim of misrepresentation on the part of Twitter could be battled in the courts, considering the chairman of the Twitter board took it to Twitter to reassure that the deal would sail through.
Bret Taylor tweeted the following:
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, 2022Opens a new window
Musk has previously talked about improving Twitter as a business and trumpeting the platform’s role as an enabler of free speech with him as the owner. This included reinstating the account of former president Donald Trump.
Musk, who has also hinted at swallowing the red pill going forward, thinks that Twitter has a left-wing bias. Part of his plans to make Twitter politically neutral is by “upsettingOpens a new window the far right and the far left equally.â€
One thing to note is that these grand plans and the $44 billion acquisition offer were announced before degrading economic conditions and a looming recession.
Musk himself has sounded the alarm bells at Tesla with a hiring freezeOpens a new window . His high-growth company Tesla is setting a conservative path regarding capital expenditure. During a town hall session at TwitterOpens a new window , Musk also suggested layoffs at the company.
In the previous few months, Telsa’s shares, which Musk leveraged to secure debt financing from Morgan Stanley and loans from other financial institutions, have fallen to a 52-week low of $620.46. During this time, the world’s richest man saw his wealth erode from ~$280 billion in mid-April to $237 billion today, which is more than the entire acquisition cost of Twitter.
It is unclear if Musk wants to renegotiate for a better deal. The current one values Twitter at $54.20 per share, which was at a 38% premium over the company’s market price when he first made the offer. After rising for a few weeks, Twitter shares closed at $36.81 on Friday last week, a discount of 47.24% below Musk’s offer.
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