Elon Musk claims he won't purchase Twitter

Elon Musk wants to end his deal to buy Twitter.

09 July 2022 Saturday 09:18
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Elon Musk claims he won't purchase Twitter

Elon Musk wants to end his deal to buy Twitter.

Musk filed a letter to Twitter Friday, claiming that Twitter made "false and misleading representations about the existence of fake accounts on its platform." Musk claims that the company has failed to comply with its obligations to share data, and information he believes he requires to evaluate its business.

Musk's lawyer Mike Ringler wrote that Twitter sometimes ignored Mr. Musk's requests. Sometimes it rejected them for reasons that seem unjustified. Other times it claimed to comply but gave Mr. Musk insufficient or unusable information.

Experts in legal law say that this could not be enough to end the $44 billion deal. Musk would still have to pay a heavy fine. The chair of Twitter's board responded to Musk's email by stating that it would sue.

"The Twitter Board is committed towards closing the transaction on Mr. Musk's price and terms and will pursue legal action to enforce that merger agreement." Bret Taylor tweeted that "We are confident we'll prevail in Delaware Court of Chancery", referring to the Delaware court that deals with corporate disputes.

In April, the billionaire CEO of Tesla (and Space X) agreed to purchase the social media company. He began to hint at a EUR" and then said outright aEUR", that he was having cold feet. He declared the purchase "on hold" in May while he investigated Twitter's accounting to see if there are automated spammers or real people using it. Twitter granted him access to its "firehose", aEUR, a live stream of over 500 million tweets per day. The two sides have been working together to close the deal since then.

The Washington Post reported that the deal was "in danger" on Thursday because Musk is skeptical about the verifiability of Twitter's spam statistics. The Post reported that his team was "expected" to take "potentially drastic action."

Musk's shift of heart may not have been caused solely by bots. Although his initial offer of $54.20 per share was not considered a fair price for Twitter, considering that Twitter was trading at above $70 last fiscal year, both tech stocks as well as the overall market have dropped sharply since Musk made the deal.

Now, Twitter shares trade at $37. This is nearly 30% down from the date Musk bought them. Musk suggested in May that he may negotiate a lower price.

Twitter pointed to a June statement that Musk's company had issued, in which it stated that it "has and would continue to cooperate with information" and that it was "intent to close the transaction and enforce its merger agreement at the agreed terms and price." It was expected that the company would hold a shareholder vote by mid-August.

Both sides agreed that Musk would purchase Twitter at $54.20 per share. If one side reneges on the agreement, they could have to pay $1 billion to the other.

Musk wrote Friday citing Twitter's refusal to provide more information on bots in his excuse for abandoning the deal. Legal experts warn that this would prove difficult.

Twitter has stated publicly for years that it believes less than 5% daily users see ads from spammers or bots. However, Twitter cautioned that this number could be higher.

Musk disagrees with this assertion, claiming that he believes up to 20% of accounts could be fake. Although Twitter granted Musk access to its flood of public data, the company said this week that its spam estimates were also based on private information, such as IP addresses, phone numbers, and behavior aEUR", and are difficult to verify by outsiders.

Even if the 5% figure on Twitter is inaccurate, it might still not be enough for Musk to withdraw or modify the terms of the agreement without having to pay a high price.

Ann Lipton, a Tulane University Law School business law professor, said that merger agreements were drafted to avoid Musk's exact strategy of trying to find a tiny false thing and then saying, "Whoops, I get away now." They specifically state that you cannot withdraw from an agreement if it is false.

The "specific performance clause" in the merger agreement allows Twitter to sue Musk for forcing him to approve the purchase, provided he has sufficient financing.

Although it may sound risky for Twitter and expensive aEUR", Lipton claims that the company's case will be "very strong" and that its board has compelling incentives. Shareholders expect to receive $54.20 per share. According to someone familiar with the negotiations, the board believes that Musk's sale agreement is the most important part of Twitter at the moment.

Lipton stated that "they would prefer to have the $54.20 with no court fight, but it is worth fighting over." Twitter's current share price of $54.20 makes it an incredible deal. There is still a lot they could do that would make it worthwhile in the end, even if Musk had to leave.

Some Wall Street analysts believe that Twitter's board of directors and management should be open for a lower price in order to avoid a long legal battle.

Angelo Zino, an analyst at CFRA Research, stated that there is no way it could be done at $54.20. "You will either see a 15% to 20% drop in Elon Musk's offer price or he continues to play his bot card."

Twitter could suffer more if Musk is taken to court. This comes at a time of uncertainty about the deal and the implications for Musk's ownership. Some employees are leaving and morale is already low. Parag Agrawal, CEO, has shaken up his executive ranks by announcing a hiring freeze as well as spending cuts.

Zino stated that going to court "doesn’t bode well to the business prospects for your company and it further adds uncertainty about the employee base."

Lipton stated that this is also a risk to Musk. What if he buys the company, and then he kind of undermines it at the time?"

She said that the billionaire's antics were chaotic but had one goal. "I don’t believe he’s committed to winning." He's committed to not spending $44billion on Twitter, I believe.



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