“The Twitter board is committed to closing the transaction at the price and terms agreed with Mr. Musk and plans to take legal action to enforce the merger agreement,” said Bret Taylor, chairman of the Twitter board. board in a tweet Friday, echoing previous statements by the company that it intended to go through with the deal. “We are confident that we will prevail in the Delaware Court of Chancery.”
Twitter shares fell nearly 6% in after-hours trading on Friday immediately after the news, after falling 5% for the day. Tesla shares gained more than 1% in after-hours trading.
Still, Musk’s lawyer claimed in Friday’s letter that Twitter “has failed to fulfill its contractual obligations” to provide Musk with sufficient data, saying that Twitter “appears to have made false and misleading statements on which Mr. Musk relied” on agreeing to the agreement.
“For nearly two months, Mr. Musk has sought the data and information necessary to make ‘an independent assessment of the prevalence of fake or spam accounts on the Twitter platform,'” the letter reads Friday. “This information is fundamental to Twitter’s business and financial performance and is necessary to complete the transactions contemplated in the Merger Agreement.”
It continued: “Twitter has failed or refused to provide this information. At times Twitter has ignored Mr. Musk’s requests, at times it has rejected them for reasons that seem unwarranted, and at times it has claimed to comply while providing Mr. Musk with incomplete information. or useless information.”
Twitter has repeatedly said it has shared information with Musk to close the deal on terms originally agreed upon.
Twitter’s share is trading at around $36, down nearly 30% since the price the day Musk and Twitter announced the acquisition and well below the $54.20 per share Musk was offering, indicating deep skepticism among investors. about the deal going through at the agreed price. The falling value may also be one of the reasons Musk is no longer interested in the deal, analysts say.
What can happen next?
By accusing Twitter of materially violating the merger agreement, Musk appears to be making the case that he shouldn’t get hooked on the $1 billion enshrined in the deal terms as a split fee in the event that the acquisition doesn’t go through. , according to Carl Tobias, a law professor at the University of Richmond.
“The way these things usually work is that if there’s a billion-dollar severance fee and you’re the one trying to acquire it, that’s enforced against you,” Tobias said, “unless there’s some material breach or some sort of reason that can be put forth that convinces a court that Twitter, for example, isn’t making the deal right.”
Musk’s attorney claimed in Friday’s letter that Musk has requested, but has not received information, such as the daily number of daily active users monetized over the past eight quarters, as well as access to “the sample set that has been used and calculations conducted” by Twitter to determine that spam and fake accounts represent less than 5% of the daily monetized user base. Twitter has said it relies on public and private information, such as ISP numbers and geographic data, on its users to count bots on the platform.
Despite signing a binding acquisition agreement, Friday’s letter also alleges that Musk has “negotiated access and information rights within the Merger Agreement precisely so that he can review data and information important to Twitter’s business before financing and completing the transaction. “
Twitter will likely ask the court for two things in its trial of Musk, said Brian Quinn, a law professor at Boston College. Twitter is expected to demand a ruling that it has not breached its contract with Musk, and it will likely seek a court order requiring Musk to complete the acquisition, he said.
In assessing Musk’s claims, Quinn added, the court will likely consider the information Twitter has provided so far and whether Musk’s requests for further disclosures are reasonable and necessary to complete the deal — for example, whether the information Musk wants is necessary to obtain government regulatory approvals or financing obligations.
Even if the lawsuit continues, the two sides will likely continue to talk, Quinn said, and the situation could resolve itself through a renegotiated sale price. That sort of solution is common in merger disputes, he said, citing the recent deal with luxury brands Luis Vuitton and Tiffany, which went to court but ended up closing at a lower price.
Musk’s claim that he needs more information “is a difficult argument to make,” Quinn added. “A judge in Delaware will be fairly familiar with how these transactions work and what is normal and what is not.”