A new York (CNN Business) Elon Musk moved to cancel his $44 billion purchase of Twitter on Friday afternoon. This was the latest twist in a fast-moving process that saw the billionaire Tesla CEO become the company's largest shareholder, decline a board seat, agree to purchase the social media platform, and then voice concerns about moving forward with the acquisition. It is almost inevitable that the next phase of the saga will involve a judicial case.
According to a regulatory filing made Friday night, a lawyer for Musk said in a letter to Twitter's top lawyer that he is terminating the agreement because Twitter (TWTR) is "in significant breach of various provisions" of the original contract, which was signed in April.
Without providing any concrete evidence, Musk has been worried for weeks that there are more spam and bot accounts on the network than Twitter has officially acknowledged. Given the recent declines in Twitter shares and the larger tech industry, analysts have hypothesized that the worries could be an attempt to fabricate a reason for the buyer to back out of a deal that he may now perceive as being expensive. The price of Tesla (TSLA) shares, which Musk intended to use in part to finance the deal, has also dropped significantly since he approved it.
Bret Taylor, the board chair of Twitter, tweeted on Friday, "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," reiterating earlier claims by the business that it intended to proceed with the deal. We're sure we'll win in the Delaware Court of Chancery.After losing 5% during regular trading hours on Friday, Twitter shares dropped close to 6% in after-hours trading right after the news. In trading after hours, Tesla stock rose more than 1%.
In May, Musk claimed the transaction was "on hold" as he assessed the volume of spam and phony accounts on the network, contradicting earlier claims that he intended to buy Twitter to get rid of bots. In a clear threat to terminate the agreement made last month, he charged Twitter of violating the merger agreement by refusing to give him the information he said he needed to assess the number of spam and fraudulent accounts on the network. Twitter responded by deciding to provide its "firehose" stream of tweets.Musk's attorney nonetheless claimed in the Friday letter that Twitter has "Twitter "appears to have made false and misleading representations upon which Mr. Musk relied" when entering into the agreement, according to Twitter, which also claimed to have "not complied with its contractual obligations" to provide Musk with adequate data. Mr. Musk has been looking for the data and information required to "conduct an independent assessment of the incidence of bogus or spam accounts on Twitter's network" for almost two months "The letter is dated Friday. This data "is essential to Twitter's operational and financial results and is required for the completion of the transactions contemplated by the Merger Agreement."
As it goes on: "Twitter has either omitted to do so or declined to do so. Twitter has occasionally ignored Mr. Musk's demands, rejected them for apparent unreasonable reasons, and purported to cooperate while providing Mr. Musk with inaccurate or useless information."
In order to seal the sale at the initially agreed-upon conditions, Twitter has frequently claimed that it cooperatively exchanged information with Musk.
Twitter's stock is currently trading around $36, down over 30% from its price on the day Musk and Twitter announced the acquisition and far below the $54.20 per share Musk proposed. This suggests that investors have significant doubts about the deal closing at the agreed-upon price. Analysts have suggested that one of the reasons Musk is no longer interested in the acquisition is its diminishing value.What might occur next
According to Carl Tobias, a law professor at the University of Richmond, Musk appears to be setting up the argument that he shouldn't be held responsible for the $1 billion specified in the deal terms as a breakup fee in the event the acquisition fell through by accusing Twitter of materially violating the merger agreement.
According to Tobias, "the way these things typically 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 keeping up with the deal."
In the letter sent on Friday, Musk's attorney alleged that Musk had asked for but had not been given information such as the eight-quarter average of monetizable daily active users and access to "the sample set used and calculations performed" by Twitter to determine that spam and fake accounts make up less than 5% of its monetizable daily user base. According to Twitter, it uses both public and private information about its users, including ISP information and geographic information, to determine the number of bots using the service.Friday's letter also asserts that Musk "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" despite having signed a legally binding acquisition agreement.
In its legal battle with Musk, Twitter will probably ask the court for two things, according to Boston College law professor Brian Quinn. According to him, Twitter will likely ask a judge to rule that it has not broken its agreement with Musk and to get an order compelling Musk to complete the transaction.
Quinn added that when evaluating Musk's claims, the court will probably take into account the information Twitter has already provided as well as whether Musk's requests for additional disclosures are reasonable and necessary for closing the deal, such as whether the information Musk wants is required to obtain regulatory approvals from the government or financing commitments.
However, Quinn said the parties will probably continue to communicate even as any legal action progresses, and the issue might be resolved by a new sale price. He cited a recent transaction involving the luxury brands Luis Vuitton and Tiffany, which went to court but was finally finalized at a cheaper price, as evidence that that type of outcome is typical in merger conflicts.
Quinn said that Musk's assertion that he needs additional knowledge "is a challenging argument to make." "A Delaware court will be very familiar with how these deals operate and what is typical and what is not,"
[zombify_post]
0 Comments