What’s happening
Elon Musk sent a letter to Twitter saying he’s ending an agreement to buy the influential social media company for $44 billion.
Why it matters
Twitter says it still plans to close the deal, so Musk’s move is setting off a legal battle between the company and the billionaire.
What’s next
Twitter says it plans to pursue legal action to enforce the agreement.
Billionaire Elon Musk said Friday that he’s pulling out of a $44 billion deal to buy Twitter, adding another twist to an ongoing saga in which the mercurial entrepreneur presented himself as the savior of free speech on the influential social network.
Musk, who also runs Tesla and SpaceX, said in a letter sent by his lawyer that Twitter breached multiple parts of the merger agreement by failing to provide more information about how it estimates the number of spam accounts on its platform. Twitter has reported that in the first quarter, fewer than 5% of Twitter’s 229 million daily users were fake or spam-focused, but Musk says that number might not be accurate.
“This information is fundamental to Twitter’s business and financial performance and is necessary to consummate the transactions contemplated by the Merger Agreement because it is needed to ensure Twitter’s satisfaction of the conditions to closing, to facilitate Mr. Musk’s financing and financial planning for the transaction, and to engage in transition planning for the business,” reads the letter to Twitter from Musk’s lawyer Mike Ringler.
Bret Taylor, chairman of Twitter’s board of directors, tweeted Friday that the company still plans to close the deal. “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,” he tweeted.
The letter also outlines other information Musk says Twitter hasn’t handed over, including information about the company’s financial conditions and more details about how Twitter calculates daily users who can see ads. The letter says that Twitter has provided Musk with some data, but it calls some of the information “minimally useful.” Musk also alleges that an early analysis suggests some of Twitter’s public disclosures of daily users are “either false or materially misleading.” The letter further alleges Twitter breached another part of the agreement that said the company had to seek and obtain consent before straying from “its obligation to conduct its business in the ordinary course,” after the social network fired key executives, laid off staff and froze hiring.
The decision to terminate the deal caps a tumultuous four months for Twitter, which found itself in the crosshairs after Musk revealed a roughly 9% stake in the company in early April. Musk appeared on the verge of joining Twitter’s board of directors but pulled out before proposing to buy the entire company and take it private. The board tepidly accepted Musk’s offer after he cobbled together highly leveraged financing for the deal.
Musk, the world’s richest person, said he wanted to acquire Twitter because he believes the company no longer adheres to the principles of free speech, a term he’s used both loosely and often. On April 26, he tweeted, “By ‘free speech’, I simply mean that which matches the law.”
Under the US Constitution’s First Amendment, free speech refers to protection from government interference. It doesn’t apply to companies such as Twitter.
The deal’s collapse could prompt the Securities and Exchange Commission to further scrutinize Musk, who fell afoul of regulators for tweeting about a plan to take Tesla private. Musk’s disclosure of his stake in Twitter was filed late and on the wrong form.
Musk has railed against the SEC, which alleged that Musk and Tesla had made “false and misleading” statements when he tweeted on Aug. 7, 2018, that he had “funding secured” to take the electric car company private.
The SEC struck a deal with Musk and Tesla that required fines of $20 million each. It also required Musk’s tweets to be vetted by a lawyer if they contained material information regarding the company. In April, a federal judge denied Musk’s request to have the oversight lifted.
Investors never wholly believed Musk would buy Twitter. Though the company’s shares jumped after Musk unveiled his stake, they didn’t reach the $54.20 price he pledged to pay. (The price includes the number 420, slang for marijuana and a running Musk gag. His proposal to take Tesla private included a suggestion a deal could be done at $420 a share.)
Twitter shares immediately fell nearly 7% in after hours trading to $34.25 per share on news that the deal was off.
