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Elon Musk pulls out of the $44 billion deal, Twitter vows to take legal action: Here is why it happened

Musk had earlier stated that one of his main priorities is to rid the micro-blogging platform of spam accounts. However, later Elon Musk tried to allay concerns about the deal by tweeting that he is “still committed to acquisition” of Twitter.

Tesla CEO Elon Musk has pulled out of the $44 billion Twitter deal, alleging that the social media giant breached provisions of the merger agreement.

As per reports, the lawyers of Elon Musk have claimed that Twitter failed to provide information about fake bots/spam accounts, which is integral to the company’s business performance.

“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,” they argued in a recent filing.

Musk also justified his decision, claiming that Twitter breached its agreement by firing 1/3rd of the talent acquisition team and several high-ranking executives.

Twitter vows legal action against Elon Musk

Reportedly, the contract signed between Musk and Twitter shareholders called for a $1 billion breakup fee, provided the Tesla CEO failed to honour the deal. This included reasons such as blockade of the deal by regulators or lack of acquisition financing.

However, the contract made it clear that if Musk terminated the deal on his own, then, the break-up fee would not be applicable. Aggrieved by the sudden development, Twitter Chairman Bret Taylor informed that the Board would pursue legal action against Elon Musk.

He tweeted, “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. We are confident we will prevail in the Delaware Court of Chancery.”

According to Tulane Law School Associate Dean, Ann Lipton, the Tesla CEO has been making up excuses to get rid of the deal. She stated that the Twitter Board is in a strong position to fight it out in court.

The rationale behind Musk’s decision to abandon the Twitter deal

On May 13 this year, Tesla CEO Elon Musk announced that the 44 billion dollar Twitter deal had been temporarily put on hold, subject to the estimate that less than 5% of users on the micro-blogging platform were spam/fake accounts.

“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk had tweeted. He had also shared the link of a Reuters report dated May 2, 2022.

As per the report, Twitter Inc. in a filing has noted that fewer than 5% of 229 million users, who were served ads, during the first quarter of 2022 were false/ spam accounts.

“Twitter said in the filing it faced several risks until the deal with Musk is closed, such as whether advertisers would continue to spend on Twitter and potential uncertainty regarding our future plans and strategy,” the report added.

Musk had earlier stated that one of his main priorities is to rid the micro-blogging platform of spam accounts. However, later Elon Musk tried to allay concerns about the deal by tweeting that he is “still committed to acquisition” of Twitter.

Pranay Pathole, a well-recognised fan of Musk, explained that Twitter’s count of spam accounts was not transparent. He said, “Transparency establishes trust.”

“It is definitely not < 5% fake/spam accounts on the platform. It doesn’t make sense to pay the same original price of $44bn if it turns out that the actual number of bot/fake accounts are higher than 20%. Elon had made a deal based out on their public filings,” he justified Musk’s decision.

Future of Twitter and immediate aftermath

On July 8, Twitter informed that it removes about 1 million spam accounts every day. It claimed that such accounts represented less than 5% of its total active user base in each quarter.

“To calculate how many accounts are malicious spam, Twitter said it reviews “thousands of accounts” sampled at random, using both public and private data such as IP addresses, phone numbers, geolocation and how the account behaves when it is active, to determine whether an account is real,” a report by Reuters read.

Meanwhile, Twitter share prices have suffered a major blow amidst the uncertainty over the ownership of the social media company. Analyst Daniel Ives remarked, “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.”

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OpIndia Staff
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Staff reporter at OpIndia

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