Elon Musk may have decided to pull out of his $44 billion deal to take over Twitter, but the social media company is saying “not so fast” and arguing that he must go through with the deal per the merger agreement.
According to a complaint filed on Tuesday in the Delaware Court of Chancery, via The Hollywood Reporter, Twitter says that by “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.” Back in April, Musk made a $44 billion cash offer to buy Twitter to “unlock” its potential to, as he put it, “be the platform for free speech around the globe.” Musk began discreetly purchasing shares of the social media giant back in January as he built his stake in the company until he owned five percent two months later.
Things began to take a turn when his fortune started to plummet in tumbling Tesla shares. Musk apparently began to have second thoughts about the deal, and on July 8, 2022, he told Twitter that he would be terminating his proposed company purchase. In a letter detailing his decision, he alleged that Twitter breached the merger agreement because of “false and misleading representations” about its bot and spam accounts. Musk also pointed to Twitter’s “declining business prospects and financial outlook” after key executives departed the company, along with layoffs and a hiring freeze.
Twitter quickly responded that it would pursue legal action to ensure the proposed deal goes through at the agreed-upon terms and price. The complaint argues that Twitter can force Musk to follow through on the takeover, and it also says the company “shall be entitled to specific performance or other equitable remedy to enforce” the deal. In contract law, specific performance is a remedy that orders a party to comply as closely as possible with the terms of a contract. The complaint goes on to read, “Twitter negotiated for itself a robust right to demand specific performance of the agreement’s terms that encompassed the right to compel defendants to close the deal, and ensured that Musk personally was bound by that provision.”
Twitter said back in June that it would comply with Musk’s demand for the internal data on spam bots and fake accounts when he began to threaten to walk away from the deal. They were to offer him access to the “firehouse” of data comprising a real-time record of more than 500 million tweets posted daily and information about the accounts and devices from which the posts are sent. Musk continues to say that the information he was given access to did not match his expectations which is why he’s pulling out of the deal. According to The Hollywood Reporter, it might be hard for Musk to walk away from the deal based on the argument that Twitter made a material misrepresentation that he relied on since the company has qualified in securities filings that its estimate of spam accounts for less than five percent of its monetizable daily active users.
“In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated.”
No matter what happens next, both sides agreed in the merger agreement to litigate any disputes in the Court of Chancery, which is known for resolving these matters faster than other courts. Judges in Chancery specialize in business law and hear cases without juries. At the end of the day, it’s likely that this whole thing will be resolved within months via a settlement, but that won’t make this any less of a public spectacle.
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