Elon Musk has notified Twitter that he intends to end its $44 billion deal to buy the social media group, accusing it of disclosing “false and misleading” information about the number of fake and spam accounts.
Twitter’s chairman, Brett Taylor, reacted swiftly, saying the board was “committed to closing the transaction at the price and terms agreed upon with Mr. Musk” and would take legal action to enforce the settlement. “We are confident that we will prevail in the Delaware Court of Chancery,” he added.
In a statement Friday, lawyers for Tesla’s billionaire CEO said Twitter was “in material breach of multiple provisions” of the sales agreement and “appears[ed] to have made false and misleading statements’. The number of spam and fake accounts on the platform is “incredibly higher” than the 5 percent estimated by Twitter, according to preliminary analysis by Musk’s advisers, the filing said.
Separately, according to the filing, Musk is considering whether Twitter’s “diminishing business outlook” and financial outlook undermine the agreement.
The filing also accuses Twitter of failing to fulfill its duty to “conduct business in the ordinary course” after CEO Parag Agrawal imposed a hiring freeze, fired two senior employees and this week announced the company was laying off a third of its talent acquisition team.
Twitter shares were down 8% in after-hours trading.
Musk previously said that Twitter’s refusal to provide information about fake accounts would make it problematic to secure financing from banks that agreed to lend him the cash to complete the transaction. He has repeatedly made it clear he is considering pulling out of the deal agreed in April.
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Under the terms of the agreement, Musk can terminate the deal by paying $1 billion if he fails to secure financing for the deal. However, US courts have historically sided with sellers in legal battles when buyers try to terminate deals to discourage buyers from backing out on false grounds.
Since Musk agreed to buy Twitter in April, the tech companies’ market capitalizations have fallen sharply, making the agreed valuation expensive relative to rivals. The stock price of Snap, one of Twitter’s closest competitors, has fallen more than 65 percent this year.
Musk secured financing from several prominent investors for the buyout, including Oracle co-founder Larry Ellison and Sequoia Capital, the venture capital group.
Tesla’s CEO shocked Wall Street when he announced his bid to take over Twitter in what he described as an effort to bring free speech back to the platform.
In a recent interview with the Financial Times, he said he would reverse former President Donald Trump’s “morally wrong” ban, which was imposed after the deadly attack on the Capitol on January 6, 2021.
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