Tesla Chief Executive Officer Elon Musk said on Friday he was terminating his $44 billion deal for Twitter, saying that the social media company had failed to provide information about fake accounts on the platform.
Shares of Twitter fell 6% in extended trading to $34.58.
The stock had zoomed to $51.70 when Musk made his $54.20 offer to buy the social media giant on April 25.
In a filing, Musk’s lawyers said Twitter had failed or refused to respond to multiple requests for information on fake or spam accounts on the platform, which is fundamental to the company’s business performance.
The Friday filing claimed that “Twitter is in material breach of multiple provisions” of the buyout deal,” and that the company “appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement.”
“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,” Musk’s law firm Skadden Arps said in a letter to Twitter.
“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.”
In response, Twitter’s chairman Bret Taylor said the social-media giant is prepared to take Musk to court.
“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,” Taylor tweeted Friday afternoon. “We are confident we will prevail in the Delaware Court of Chancery.”
Musk said he told Twitter on June 6 that it breached the merger agreement by not providing enough info on the fake accounts, according to the filing.
“As Twitter has been on notice of its breach since at least June 6, 2022, any cure period afforded to Twitter under the Merger Agreement has now lapsed,” Musk said.
In the Friday filing, Musk acknowledged that Twitter has provided some information but said not as much as it gives its largest advertisers.
“While Twitter has provided some information, that information has come with strings attached, use limitations or other artificial formatting features, which has rendered some of the information minimally useful to Mr. Musk and his advisors.”
Musk has gone silent on his favorite platform since Friday’s shocking announcement. The tech titan is expected to speak Saturday at the Allen & Co.’s Sun Valley Conference in Idaho.
The announcement is another twist in a will-he-won’t-he saga after the world’s richest person clinched a $44 billion deal for Twitter in April but then put the buyout on hold until the social media company proved that spam and bot accounts were fewer than 5% of users who see advertising on the social media service.
Last month, Twitter allowed Musk access to its “firehose,” a repository of raw data on hundreds of millions of daily tweets.
The terms of the deal require Musk to pay a $1 billion break-up fee if he does not complete the transaction.
The decision is likely to result in a long protracted legal tussle between the billionaire and the 16-year-old San Francisco-based company.
Insiders have speculated that Musk is trying to renege on the deal because he is now paying a massive premium for the company as a result of the tech stock correction.
It was reported by The Wall Street Journal on Thursday that Twitter laid off a third of its talent acquisition team.
In Friday’s filing, Musk claimed that Twitter’s recent round of layoffs needed to be approved by him.
Daniel Ives, an analyst at Wedbush, said Musk’s filing was bad news for Twitter.
“This is a disaster scenario for Twitter and its Board as now the company will battle Musk in an elongated court battle to recoup the deal and/or the breakup fee of $1 billion at a minimum,” he wrote in a note to clients.
Before the news broke, Twitter CEO Parag Agrawal, who assumed the chief executive job last fall after company co-founder Jack Dorsey stepped down from the role, had reportedly been “willing to go to war to make this deal happen.”
Agrawal would be due to receive a payout of $42 million under the current terms of the buyout. As with a handful of other Twitter executives, Agrawal’s payout would be triggered by a so-called “change in control” clause in their contracts which kicks in if either of them is terminated within 12 months of new ownership assuming the helm of the company.