Twitter was already struggling to meet lofty growth targets before Elon Musk arrived at its front door with a US$44 billion offer. After months of back and forth that divided the company, Musk has pulled out of the US$44 billion Twitter deal, with his representatives saying: “Twitter has not complied with its contractual obligations. 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 Twitter’s platform.'” The statement added, “Twitter has failed or refused to provide this information.”
Within minutes, Twitter vowed to take Musk to court and is committed to closing the transaction. Some experts are saying that this is just a negotiating ploy, and scholars are saying that the Delaware court, which historically isn’t a fan of scrapping merger deals, will still make Musk honor the agreement, perhaps just with different terms that could make the head of Twitter perhaps an unsatisfied buyer.
Key comments:
“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. 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 Twitter’s platform’ (our letter to you dated May 25, 2022 (the ‘May 25 Letter’)). 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. 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,” said Musk’s lawyers in the regulatory filing.
“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,” Bret Taylor, chairman of the board, said in a tweet. “We are confident we will prevail in the Delaware Court of Chancery.”
“If it goes to court, Musk has the burden to prove more likely than not, that the spam account numbers not only were false, but they were so false that it will have significant effect on Twitter’s earnings going forward,” said Ann Lipton, associate dean for faculty research at Tulane Law School.
