Months after Elon Musk made a move to acquire Twitter for $44 billion, the Tesla chief executive said on Friday he is terminating the deal over the social media firm’s inability to provide him with accurate information about the number of fake accounts on its platform.
Musk said Twitter’s refusal to provide all information he requested violated part of the deal’s agreement, as it is necessary for the company’s business performance. “Mr. Musk is terminating the Merger Agreement because Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect,” Musk’s lawyers wrote in a letter to Twitter’s Chief Legal Officer Vijaya Gadde.
After purchasing more than 9% Twitter shares in April, Musk had moved for a hostile takeover of the platform in a bid to promote free speech and to make the company more profitable for shareholders.
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But the agreement involves Twitter supplying Musk with information on the number of users on the platform. He had threatened to pull out of the deal unless the company provides proof to back up its claim that spam and bot accounts are less than 5%.
Twitter had maintained that the information it provided to Musk about the number of users on the platform is accurate, and allowing him access to the company’s data as he requested, will mean exposing private data of users. However, the company succumbed last month, allowing Musk access to its “firehose”, a repository of raw data on hundreds of millions of daily tweets.
Musk’s decision to halt the deal means he was not satisfied with the firehose data. But there is belief that the decision may have been informed by pressure from Tesla shareholders. Tesla has lost more than $400 billion since Musk announced his decision to purchase Twitter, prompting the electric vehicle company’s shareholders to take a legal action against the CEO.
However, while Musk’s decision to back out of the deal will yield good fortune for Tesla and bad one for Twitter, it is going to result in a long legal battle. Tesla’s shares rose 14.51% to close at $752.29 on Friday while Twitter stocks fell 6% in extended trading and it’s expected to plunge further in the coming days.
Twitter has said in response it is going to take a legal action against Musk.
“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,” tweeted Twitter’s chairman, Bret Taylor. “We are confident we will prevail in the Delaware Court of Chancery.”
The deal’s agreement requires that Musk pay a $1 billion breakup fee, if he opts out the deal – unless Twitter breaches any part of the agreement. Musk has claimed that Twitter’s unwillingness to provide him with accurate data gives him the right to walk away from the deal without having to pay the penalty.