Tesla CEO Elon Musk has formally informed Twitter that he is terminating his $44 billion bid to buy the social media platform. “Twitter is in material breach of multiple provisions” of the agreement, Musk’s lawyer explained.
Musk Ending Deal With Twitter Citing ‘Material Breach of Multiple Provisions’
Tesla and Spacex CEO Elon Musk’s lawyer sent a letter to Twitter Inc. Friday regarding Musk’s offer to buy the social media platform. The letter, filed with the U.S. Securities and Exchange Commission (SEC), states:
Mr. Musk is terminating the merger agreement because Twitter is in material breach of multiple provisions of that agreement.
The letter claims that Twitter “made false and misleading representations” and Musk relied on them when he signed the merger agreement between Twitter and his companies: X Holdings I Inc. and X Holdings II Inc.
The lawyer explained that Twitter has not complied with its contractual obligations to provide necessary data to Musk.
For nearly two months, Musk has sought the data and information necessary to “make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform,” the lawyer described, elaborating:
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 acknowledges that Twitter has provided some information. However, “that information has come with strings attached, use limitations or other artificial formatting features, which has rendered some of the information minimally useful to Mr. Musk and his advisors,” it notes.
In early June, Musk’s lawyer informed Twitter of the material breach and warned that Musk could terminate the deal. “Any cure period afforded to Twitter under the merger agreement has now lapsed,” the lawyer noted.
Furthermore, Musk’s lawyer alleged that Twitter made “materially inaccurate representations,” particularly regarding the social media company’s claim that “fewer than 5%” of its mDAU are false or spam accounts. Twitter defines “monetizable daily active usage or users (mDAU) as Twitter users who logged in and accessed Twitter on any given day through Twitter.com or Twitter applications that are able to show ads.”
Based on Musk’s own preliminary analysis:
All indications suggest that several of Twitter’s public disclosures regarding its mDAUs are either false or materially misleading … The proportion of false and spam accounts included in the reported mDAU count is wildly higher than 5%.
In addition, “Twitter’s disclosure that it ceases to count fake or spam users in its mDAU when it determines that those users are fake appears to be false,” the lawyer said.
The letter further notes that Twitter deviated from its obligation to “preserve substantially intact the material components of its current business organization.” Since the deal with Musk was signed, the social media company fired key, high-ranking employees and announced on July 7 that it was laying off a third of its talent acquisition team. Moreover, three executives have resigned.
Noting that Twitter did not receive consent for these changes, Musk’s lawyer alleged that the company’s actions further constitute a material breach of the merger agreement with the Tesla CEO.
The letter concludes:
For all of these reasons, Mr. Musk hereby exercises X Holdings I, Inc.’s right to terminate the merger agreement and abandon the transaction contemplated thereby.
Musk and Twitter originally agreed on a termination fee of $1 billion when the agreement was signed. However, the material breach accusation and any subsequent lawsuits could complicate the fee.
Bret Taylor, a Twitter board member, tweeted Friday in response to Musk terminating the merger deal:
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 added: “We are confident we will prevail in the Delaware Court of Chancery.”
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