Elon Musk is terminating his $44 billion deal to buy Twitter, but the company vowed Friday to still complete the deal, setting the stage for a legal battle that could lead to more turmoil for the social media network.
After months of growing doubt that he intended to close the deal, Musk's lawyers sent a letter to Twitter arguing he has a right to drop out of the agreement because Twitter hasn't given him enough information about the company's business. Musk's filing was blunt about his intentions: He is "terminating their merger agreement," said the letter, attached in a Securities and Exchange Commission filing.
Twitter's board hit back at the billionaire Friday, saying it would pursue legal action to enforce the deal. Legal experts have said it will be difficult for Musk to just walk away from the agreement, which included a $1 billion breakup fee.
Friday's development set the stage for a legal battle that could stretch for months and signaled more uncertainty for a social media company that has been embattled by leadership changes, a falling share price and low morale.
Twitter has plunged into chaos since Musk announced his intentions to take over the firm in April. Employees, fearing layoffs and a significant change of operations under the billionaire, have been looking for new jobs as Musk has regularly aired his criticisms of the business in tweets. And the billionaire's move to exit the deal leaves Twitter's reputation in jeopardy, with its future ownership in flux.
"It discombobulated their whole operation," said Carl Tobias, law professor at the University of Richmond. "It's going to be tough for Twitter to weather this."
Musk has been known for impulsive decision-making, often illuminated by his late-night tweeting. His Twitter following has ballooned as he has pursued ownership of the site, soaring past 100 million followers most recently. His interest in buying Twitter, updates on the deal and his decision to reassess the purchase were all projected to legions of fans and detractors on the site in real time.
Musk's filing accused Twitter on Friday of having "failed or refused to" hand over information that would help Musk and his team ascertain the true number of bots or spam accounts on the social media platform.
"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.
Twitter board chair Bret Taylor tweeted Friday that the company would pursue legal action against Musk.
"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," he wrote. "We are confident we will prevail in the Delaware Court of Chancery."
Twitter shares fell nearly 6% in after-hours trading Friday following the disclosure.
Musk's April agreement to buy the company included a commitment to go through with the acquisition barring a major change to the business, and legal experts say that threshold is difficult to meet in court. Musk has previously threatened to scuttle the deal if Twitter didn't give him more data to run his own analysis on how many spam bots it has, while Twitter has said it can't give up personal information about its users - such as names, emails and IP addresses - that it uses to come up with its own bot numbers.
Musk did not respond to a request for comment.
In the letter, Musk accused Twitter of a "material breach" of provisions in the agreement and of making "false and misleading" representations. It also cited a likelihood of a "material adverse effect," which typically means a significant change that would affect the value of the company.
"In short, Twitter has not provided information that Mr. Musk has requested for nearly two months notwithstanding his repeated, detailed clarifications intended to simplify Twitter's identification, collection, and disclosure of the most relevant information sought in Mr. Musk's original requests," the letter said.
In the letter, Musk also referred to the company's finances as a potential reason to get out of the deal, citing what he described as the company's "declining business prospects and financial outlook."
Musk argued in the letter to the company that Twitter broke its agreement not to substantially alter its business after the deal was signed by "firing" two senior executives in May and conducting layoffs in its hiring team in July. Musk also appeared to argue in the filing that he didn't waive the right to do due diligence when he signed the deal and expected Twitter to be forthcoming with more information.
Legal experts have said that when he signed the deal, he agreed to buy the company as is.
Musk shook up the social media world in April when he unveiled his plans to buy Twitter, assembled a large group of co-investors and leveraged his personal wealth to get the funding needed to finish the deal. But soon after his takeover announcement, a global sell-off in tech stocks eroded Musk's net worth, while making his $54.20-a-share purchase price look like a serious overvaluation of Twitter.
Musk sceptics have said he concocted the argument about bots simply to find a reason to get out of what he now sees as a bad deal.
Wall Street had for months been sceptical Musk would complete the deal. Twitter's stock price was trading at around $37 on Friday, down nearly 30% from the $52 it traded at the time he made his acquisition announcement.
The filing came after The Washington Post reported Thursday that the deal was in serious jeopardy, as talks with at least one likely investor had cooled and Musk's concerned over spam bots were not resolved, according to people familiar with the situation who spoke on the condition of anonymity to discuss sensitive matters.
The Washington Post