Elon Musk has decided that he won’t be buying Twitter anymore. In a not-so-surprising move, the richest man terminated a $44 billion deal signed with Twitter, claiming “material breach of multiple provisions of the Agreement” as the cause. He had already previously declared the deal “on hold.” Now, the question arises can he get away so easily?
Still Owns A Big Chunk In The Company…
On Friday (July 8) afternoon, the (current) richest person in the world notified the SEC that he had terminated his painfully drawn-out effort to buy Twitter, his favourite social media site, reportedly claiming “material breach of multiple provisions of the Agreement” as the cause. He had already previously declared the deal “on hold.”
Musk’s lawyer Mike Ringler wrote in the letter to Twitter that for nearly two months, Musk has sought data to judge the prevalence of “fake or spam” accounts on the social media platform.“Twitter has failed or refused to provide this information. 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 said.
It also said the information is fundamental to Twitter’s business and financial performance, and it’s needed to finish the merger agreement. The SpaceX Founder may have terminated the $44 billion deal but he’ll still own a big chunk of the company. If you remember, Musk bought a 9% stake in the company in April, making him the largest individual shareholder. In the same month, he announced he wanted to take it privately by swallowing up the rest
So if the deal had gone through, it would have been Elon Musk’s private company, rather than what it still is: a publicly traded corporation owned in large part by Elon Musk. But is it all that easy? Can he back out like this from a legally binding agreement? Well, that’s a point to discuss.
Can Elon Musk Back Out From The Deal?
According to the filing with the SEC on April 25, the deal calls for Musk to pay Twitter a $1 billion breakup fee if he terminates the deal. However, Musk may not be able to just walk away. Twitter still holds the power to force him to complete the deal, at least, that’s what legal observers suggest.
The issue is whether the prevalence of bots on the social media platform is “fundamental to Twitter’s business and financial performance” as Musk’s lawyers have argued. “The question is whether or not this is really material information,” UCLA law professor James Park said. He added, “It should be fairly obvious that there are potentially fake spam accounts at a company like Twitter. (Musk) can make this argument, but I think it’s a weak one. To me, this is just a pretext for him to pull out of the deal.”
Twitter’s board chair Bret Taylor said the company is still committed to closing the deal at the agreed-upon price and plans to pursue legal action to enforce the agreement. Bret tweeted: “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.”
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, 2022
Case Western Reserve business law professor Anat Alon-Beck gave more clarity on the legal stance by saying: “Twitter has “every incentive to enforce the deal. If they don’t at least attempt to force Musk to close, they’ll have his allegations of false statements hanging around their necks unless they contest his statements. This fight is just beginning and only time will tell on how steep a penalty each side will pay to close this deal.”
Jennifer Grygiel, a professor at Syracuse University, noted that Musk may not be through with the deal yet. “Who says he’s still not trying to acquire it?” Grygiel said. “We’re still very much in a limbo period and we have to wait and see where this all ends up. What is clear: Musk will have a legal battle on his hands. Park said the case should move “very quickly” through the Delaware Court of Chancery, with a trial and a decision “in just a few weeks.”
GOP Is Disheartnened By The Decision…
Conservatives were the ones who were really celebrating in April when Elon Musk made an unsolicited $44 billion bid for Twitter, vowing to restore “free speech” on the social media platform. The response was more muted late Friday when it became clear that Musk would not be the saviour the political right had hoped for.
In a regulatory filing, Musk said he was terminating the Twitter deal over a disagreement about how many spam accounts are on the platform. The conservative activist and president of Judicial Watch, Tom Fitton said Musk was ditching the Twitter deal because the company refused to disclose details of “its censorship operation.”
Charlie Kirk, founder, and president of the conservative nonprofit Turning Point USA tweeted: “Maybe Elon never intended to buy Twitter at all. Maybe he just wanted to expose it.” Donald Trump Jr. declared that Musk walking away from the deal meant Twitter was caught lying about spam accounts. “So basically Twitter has a huge amount of spam accounts – way more than they let on – and has gotten busted for it!!!”
“Bottom line,” tweeted Florida GOP congressional candidate Lavern Spicer, “Elon Musk isn’t going to save us.” Actor James Woods sounded a more critical note, tweeting: “Musk failed us.” However, he later deleted the tweet.
On Friday, Twitter’s shares fell 5 percent to $36.81, well below the $54.20 that Musk had offered to pay. Shares of Tesla, meanwhile, climbed 2.5 percent to $752.29. As for fake accounts, Twitter shared light on how it counts spam accounts by stating that it removes 1 million spam accounts per day.
Twitter elaborated on the issue by saying: “The spam accounts represent well below 5 percent of its active user base each quarter. To calculate how many accounts are malicious spam, Twitter reviews thousands of accounts sampled at random, using both public and private data such as IP addresses, phone numbers, geolocation and how the account behaves when it is active, to determine whether an account is real.”