Elon Musk Wants Out, But Twitter Says It Will Force Him To Close The Sale
Editor’s Note: You can just see a bloodbath for Twitter stock on Monday.
Elon Musk agreed to buy Twitter for $44 billion.
On Friday, Musk sent a letter to Twitter’s board Friday saying he is terminating the acquisition.
In attempting to walk away from the $44 billion acquisition of Twitter, Elon Musk sets the stage for a legal battle, which could carry financial risks for the social network and further darken employee morale. https://t.co/dgD6DePmnI
— The Washington Post (@washingtonpost) July 9, 2022
CNN reports Twitter tells Musk it will Force Him to Close the Sale.
Elon Musk moved Friday afternoon to terminate his $44 billion deal to buy Twitter — the latest twist in a whirlwind process in which the billionaire Tesla CEO became the company’s biggest shareholder, turned down a board seat, agreed to buy the social media platform and then started raising doubts about going through with the deal. The next chapter in the saga is almost certain to be a court battle.
A lawyer representing Musk claimed in a letter to Twitter’s top lawyer that he is ending the deal because Twitter (TWTR) is “in material breach of multiple provisions” of the original agreement, which was signed in April, according to a regulatory filing Friday evening.
“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,” Twitter board chair Bret Taylor said in a tweet Friday, echoing earlier statements by the company that it planned to follow through with the deal. “We are confident we will prevail in the Delaware Court of Chancery.”
Musk in May said the deal was “on hold” as he evaluated the number of spam and fake accounts on the platform — a reversal from his previous statements that he wanted to acquire Twitter to eradicate bots on the platform. Last month, he directly threatened to walk away from the deal, accusing Twitter of breaching the merger agreement by not providing the data he says he needs to evaluate the number of spam and fake accounts on the platform. In response, Twitter agreed to hand over its “firehose” stream of tweets.
What’s This Really About?
Musk says it’s about spam bots and fake accounts.
However, I believe that is an excuse to get out of a deal that never made any sense. Musk’s offer was too high and he wants out.
For sure there are spam bots and they go after me every day. Here is an example.
Other spam bots imitate people. I have dozens of people Tweeting to me under false pretenses pretending to be someone else.
In that kind of phishing scheme, the person or bot takes the Twitter handle of a well known account then changes a character or adds a character. Pretending to be someone else, the bot invites you with a cryptic message to do something, typically join his private group on the Telegram messaging service.
It is alleged half the people following Trump are spam bots. When you look up some of these accounts they have 20 Tweets or so. They are not real.
Material Breach of Contract
On June 6, in a Six-Paragraph Letter to Twitter, Musk’s lawyers demanded more data.
As noted, under various terms of the merger agreement, Twitter is required to provide data and information that Mr. Musk requests in connection with the consummation of the transaction. Twitter’s obligations to provide Mr. Musk with information is not, as the company’s June 1 letter suggests, limited to a “very specific purpose: facilitating the closing of the transaction.” To the contrary, Mr. Musk is entitled to seek, and Twitter is obligated to provide, information and data for, inter alia, “any reasonable business purpose related to the consummation of the transaction” (Section 6.4). Twitter must also provide reasonable cooperation in connection with Mr. Musk’s efforts to secure the debt financing necessary to consummate the transaction, including by providing information “reasonably requested” by Mr. Musk (Section 6.11). Mr. Musk’s requests for user data not only satisfies both criteria, but also meets even Twitter’s narrowed interpretation of the merger agreement, as this information is necessary to facilitate the closing of the transaction.
Musk said Twitter refused to disclose the number of fake accounts on its platform.
Q&A on a Forced Sale
Q: Can Twitter Prevail?
A: They certainly can, and I believe they will.
One cannot force a deal if the buyer does not have the means to pay, but Musk has plenty of assets in which to raise the cash for his offer.
The reason I expect Twitter to prevail is Elon Musk waived due diligence in his offer. Then Musk immediately started asking Twitter for things not in the agreement.
Change the Terms?
Q: Can the Twitter board just change the terms?
A: No, that would bring shareholder lawsuits, besides, the board would not want to do that anyway.
In light of waving due diligence, for there to be a “material breach” of the deal Musk would have to prove that Twitter purposely made false material false statements.
There is a $1 billion breakup fee. But the courts may easily force the deal through.
CNBC reports the merger agreement includes a “specific performance clause” that says Twitter has the right to sue Musk to force him to go through with the deal, as long as he still has the debt financing in place.
Musk was more than a bit sloppy. One wonders what Musk and his lawyers were thinking.
Article posted with permission from Mish Talk