“The Twitter board is committed to completing the transaction on the price and terms agreed upon with Mr. Musk and plans to take legal action to enforce the merger agreement,” Twitter board chairman Brett Taylor said in a tweet Friday. The company plans to pursue the deal. “We are confident that we will prevail in the Delaware Court of Chancery.”
Shares of Twitter fell nearly 6% in after-hours trading on Friday, and ended the day down 5% following the news. Tesla shares rose more than 1% in after-hours trading.
However, Musk’s attorney, in a letter Friday, accused Twitter of “failing to comply with its contractual obligations” to provide Musk with sufficient data, and said Twitter “appears to have made false and misleading representations that Mr. Musk relied on.” Agreement.
“For nearly two months, Mr. Musk sought data and information necessary to independently assess the prevalence of fake or spam accounts on Twitter’s platform,” Friday’s letter said. “This information is fundamental to Twitter’s business and financial operations and is necessary to complete the transactions contemplated by the merger agreement.”
It continues: “Twitter has failed or refused to provide this information. At times Twitter has ignored Mr. Musk’s requests, at other times it has denied them for seemingly unreasonable reasons, and at times it has said it will comply when Mr. Musk reports incomplete or unusable information.”
Twitter has repeatedly said it shared information with Musk to close the deal on terms originally agreed upon.
Shares of Twitter have fallen about 30% to trade at $36 since the day Musk and Twitter announced the takeover, well below the $54.20 a share Musk offered, leaving investors deeply skeptical about the deal going through at the agreed-upon price. Analysts said the drop in value could be part of the reason Musk is no longer interested in the deal.
What can happen next?
In accusing Twitter of breaching the merger agreement, Musk appears to be setting up an argument that he should not seek a $1 billion break-up fee in the terms of the deal if the acquisition fails. Carl Tobias is a law professor at the University of Richmond.
“The way these things usually work is, if there’s a billion-dollar break-up fee that you’re trying to buy, it’s enforced against you,” Tobias said, “unless there’s some kind of material breach or some kind of breach. For example, Twitter has reason to persuade the court that it didn’t perform well on the deal.” .
Musk’s lawyer said in a letter Friday that Musk requested but did not receive information such as the number of monetizable daily active users over the past eight quarters, as well as the “sample set used and calculations performed” by Twitter. Spam and fake accounts make up less than 5% of its monetizable daily user base. Twitter has said it relies on public and private information such as its users’ ISP numbers and geographic data to count bots on the platform.
Despite signing a binding acquisition agreement, Friday’s letter said Musk “precisely negotiated the access and information rights contained in the merger agreement so that he could review data and information critical to funding Twitter’s business and completing the transaction.”
Brian Quinn, a law professor at Boston College, said Twitter is likely to hear two things in court in its case against Musk. Twitter is expected to seek a ruling that it did not breach its contract with Musk, and it may seek a judicial order requiring Musk to complete the acquisition, he said.
In evaluating Musk’s claims, Quinn added, the court will 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 commitments.
However, if any litigation continues, the two sides will continue to talk, Quinn said, and the situation could resolve itself through a renegotiated sale price. That kind of settlement is common in merger disputes, he said, citing a recent deal involving luxury brands Louis Vuitton and Tiffany that went to court but was ultimately settled at a lower price.
Quinn added that Musk’s claim that more information is needed is “a tough argument.” “A judge in Delaware will be very familiar with how these transactions work and what is normal and what is not.”