Twitter vows to take Musk to court after the billionaire backs out of his $44 billion deal
CNN says that Elon Musk has ended his quest to purchase Twitter as the richest man in the world has withdrawn his $44 billion offer to purchase the social media firm. A letter sent to Twitter's top attorney from a lawyer representing Musk says that the billionaire wants to back out of the deal because Twitter was "in material breach of multiple provisions” of the sale agreement that was signed in April. Musk had previously demanded assurances from Twitter that less than 5% of Twitter accounts are fake or spam accounts.
Musk backs out of $44 billion deal to buy Twitter
The letter says, "Mr. Musk and his financial advisors at Morgan Stanley have been requesting critical information from Twitter as far back as May 9, 2022—and repeatedly since then—on the relationship between Twitter’s disclosed mDAU (monetizable daily active users who are verified Twitter members able to receive ads) and the prevalence of false or spam accounts on the platform."
Twitter's shares fall after Musk backs out of his deal to buy the company
Just about a couple of weeks ago, Twitter's board agreed to the $44 billion acquisition by Musk. This afternoon, Twitter Chairman Bret Taylor said, "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."
Musk, almost from the get-go, threatened to back out of the deal complaining that Twitter wasn't being honest about the number of fake accounts on the site. Twitter says that Musk has received the correct information from it and plans to hold him to the agreement. The acquisition was originally announced by Musk on April 14th with the Tesla executive saying that he would pay $54.20 in cash for each share of Twitter, a 38% premium over the stock's closing price the previous day.
But Wall Street never felt that Musk would close the deal. As a result, the stock continuously closed each day well under the $54.20 that Musk said he would pay for each share of Twitter. This was a strong indication from serious market traders and those well-versed in arbitrage that the deal would not get done.
Twitter could be entitled to a $1 billion break-up fee that would be paid by Musk
Under the terms of the agreement, Musk could owe Twitter a $1 billion break-up fee. This is why Tesla's CEO is putting the blame on his decision to back away from the deal on the alleged "false and misleading representations" that he alleges were made by Twitter. Musk points out that 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."
University of Richmond law professor Carl Tobias stated that "The way these things usually work is that if there's a billion-dollar breakup fee and you're the one trying to acquire, then that is enforced against you unless there's some kind of material breach or some kind of reason that can be offered up that persuades a court that Twitter, for example, is not making good on the deal."
There is still a chance that the deal can be renegotiated with a lower price more favorable to Musk. To help finance the first bid, the billionaire had to borrow funds against some of his holdings in Tesla which he reportedly was not happy about. Borrowing against his Tesla holdings was a risky move since a sudden decline in the car manufacturer's stock could have forced Musk to sell additional shares triggering a margin call.
During regular trading hours on Friday, Twitter shares declined $1.98 or 5.1% to $36.81. In after-hours trading, the stock declined another $1.97 or 5.35% to end the week at $34.84. The stock's 52-week high is $73.34 and it has a 52-week low of $31.30.
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Things that are NOT allowed: