Twitter sues Musk over $44bn takeover deal; Why did he back out?
On 12 July, Twitter Inc sued Elon Musk for violating his $44 Billion deal to buy the platform. The company asked a Delaware court to order the Tesla CEO to complete the merger at the agreed $54.20 per Twitter share.
Twitter sues Musk
“Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he – unlike every other party subject to Delaware contract law – is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” read the complaint.
The complaint comes after Musk proclaimed backing out from his proposed $44 Billion takeover of Twitter in the last week. According to him, Twitter had not provided information about the number of fake and spam accounts on the platform.
What does the lawsuit say?
The lawsuit states the following things:
- It accuses Musk of a “long list” of violations of the merger agreement that have cast a pall over Twitter and its business.
- It says Musk had backed out of the deal because it “no longer serves his personal interests”.
- Stating how after Musk agreed to the deal, the stock market fell along with Tesla shares: “The value of Mr. Musk’s stake in Tesla, the anchor of his personal wealth, has declined by more than $100bn from its November 2021 peak. So [Mr.] Musk wants out. Rather than bear the cost of the market downturn, as the merger agreement requires, [Mr.] Musk wants to shift it to Twitter’s stockholders.”
The lawsuit kicks off what promises to be one of the biggest legal battles in Wall Street history, pitting one of the business world’s most colorful entrepreneurs against staid contract language. In the previous week, Musk announced the termination of the deal because Twitter violated the agreement by failing to respond to requests for information regarding fake or spam accounts on the platform—which is fundamental to its business performance.
The lawsuit further said for the first time that employee attrition has been on the upswing since the deal was announced. Twitter further accused Musk of secretly accumulating shares in the company between January and March 2022 without properly disclosing his substantial purchase to regulators. The company further said that Musk instead kept amassing Twitter stock with the market none the wiser.
Why did Musk get cold feet?
Initially, Musk’s offer to buy Twitter was met with resistance. The company evoked a ‘poison pill’ provision to stop him from forcibly buying it. However, eventually the company accepted the offer and Musk greeted the deal with a one-word tweet: “Yesss!!!”
A few weeks later, Musk apparently developed buyer’s remorse. After running all errands and purchasing the microblogging giant, he had some questions to be answered. In response to that, he tweeted: “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.” According to him, Twitter had no way of verifying how many of its 229 million daily active users were actually humans. Twitter CEO Parag Agarwal replied with a 13-tweet thread.
In his filing to the US Securities and Exchange Commission (SEC), Musk said he had “repeatedly” requested further information on spam accounts – data that was not forthcoming. Yet sceptics argue that Musk’s interest in bots is a distraction. Twitter is well known for having a significant number of fake accounts. In fact, Twitter announced on Thursday that it removes a million bot accounts every day.
Twitter would readily have admitted it had a relatively small but persistent bot problem before Musk put in an offer. Instead, it’s posited that bot and spam accounts are being weaponized by Musk, as an exit ramp out of this deal.