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Elon Musk abandons Twitter purchase, faces lawsuit
South African-born tech billionaire Elon Musk has abandoned his plans to acquire Twitter, submitting a filing to end the deal. However, he now faces a lawsuit as Twitter aims to close the deal agreement.
Musk’s decision didn’t come as a surprise to many. In May, the businessman said the deal was on hold pending more details about bot numbers on the site.
Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of usershttps://t.co/Y2t0QMuuyn
— Elon Musk (@elonmusk) May 13, 2022
Some analysts speculated his negative tweets about Twitter were attempts to get a lower purchase price. Musk initially agreed to buy Twitter for $44 billion.
However, other analysts predicted that he would abandon the deal entirely.
In a letter to the SEC, Musk’s lawyer said that the billionaire is terminating the merger agreement.
“Mr. Musk is terminating the Merger Agreement because Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect,” the letter says.
Why has Elon Musk terminated the Twitter deal?
But what are the false and misleading representations that Musk is alleging against Twitter?
According to the SEC letter, it comes back to the bot numbers.
Musk says that Twitter’s bot numbers may be higher than what’s publicly disclosed and that the company has not provided the necessary information to him around these numbers.
“While Section 6.4 of the Merger Agreement requires Twitter to provide Mr. Musk and his advisors all data and information that Mr. Musk requests ‘for any reasonable business purpose related to the consummation of the transaction,’ Twitter has not complied with its contractual obligations,” the letter says.
“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,” it later adds.
However, Twitter has stuck by its estimation that monetizable daily active users (mDAUs) account for under 5% of total mDAUs.
Twitter CEO Parag Agrawal shared a lengthy thread in May explaining the methodology that they use to assess the number of spam and bot accounts.
Our actual internal estimates for the last four quarters were all well under 5% – based on the methodology outlined above. The error margins on our estimates give us confidence in our public statements each quarter.
— Parag Agrawal (@paraga) May 16, 2022
He also stated that he does not believe that estimates could be calculated externally, as they require private user data.
Twitter lawsuit against Musk
Twitter has announced that the company will be pursuing legal action against Musk. The original deal included a clause that specified a penalty will be paid by Musk if he terminates the agreement.
However, the legal challenge announced by Twitter Chairman Bret Taylor appears to be aimed at pushing the deal through.
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
In a post on Twitter, Taylor said that the board is committed to closing the deal at the price of Musk’s initial offer ($44 billion).
As a result, the board is filing legal action against Musk.
Whether the lawsuit will succeed, or Musk will just need to pay the $1 billion termination fee, remains to be seen.
Musk is already facing another lawsuit from Twitter shareholders over accusations he has tried to lower the share price.
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Feature image: Unsplash/Jeremy Bezanger