Less than three months after reaching the $44 billion deal to acquire it, Elon Musk terminated his agreement to buy Twitter on Friday, setting the stage for an arduous court brawl by alleging that the company misrepresented user data.
A Securities and Exchange Commission (SEC) filing shows that in the letter a lawyer wrote on Musk’s behalf to Twitter’s chief legal officer it is said that the Merger Agreement is being terminated because Twitter is in material breach of multiple provisions of the deal.
When entering into the Merger Agreement, Musk reportedly relied on apparently false and misleading representations Twitter made and is likely to suffer a Company Material Adverse Effect.
On top of that, Twitter failed to share with Musk the business information he requested so he can make an independent assessment of the prevalence of fake or spam accounts on the social media platform, rejecting or ignoring Musk’s requests.
Tesla’s CEO has previously expressed his intentions to assess the social media platform’s claims that about 5% of its monetizable daily active users (mDAUs) are spam accounts.
The information that was given to Musk much later, as the letter alleges, was incomplete and insufficient to perform such an independent assessment. The lawyer noted that Twitter’s public disclosures regarding its mDAUs were either false or materially misleading.
Responding to Musk’s announcement, the chairman of Twitter’s board, Bret Taylor expressed the board’s commitment to close the transaction on the price and terms agreed upon with Musk, threatening legal action to enforce the merger agreement.
Taylor’s tweet says they’re confident they’ll prevail in the Delaware Court of Chancery.
Although the agreement stipulates for Musk to pay $1 billion if he backs out of it, under the agreed terms, Twitter can seek to hold Musk to his original deal by suing him for walking away.
The dramatic pullout has impacted Twitter’s stock, which dropped 6% percent on Friday after hours.
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