Twitter’s would-be new owner bailed on the social media company after claiming a material breach of “false and misleading representations” on spam and fake accounts, among other requested information.
Elon Musk pulled the plug on his $44 billion deal to buy Twitter, setting the stage for a court battle over a billion-dollar breakup fee and more. Following the formal notice shared by Musk’s lawyers, Twitter has demanded the completion of the much publicized acquisition, slamming the Tesla chief's withdrawal of his offer as "invalid and wrongful".
What led to the breakup
Despite having arguments that may be valid, a noted professor of law says that these are not considered to have merit enough to dismiss the deal altogether. “It's not enough unless he can show that the representations (about fake accounts) are not just false, but also that they dramatically call the fundamentals of the deal into question,” explains Ann Lipton, a Tulane University professor specializing in corporate litigation.
Musk began showing signs of cold feet in May, stating that the deal to buy Twitter was "temporarily on hold" pending details on the prevalence of spam and fake accounts on the platform. His lawyers also pointed to recent Twitter high-ranking employee layoffs and hiring freezes as being contrary to the company's obligation to continue operating normally.
While Twitter is in a strong position, any court proceedings are expected to last for months, especially since Musk "will drag it out," according to Lipton.
The announcement of the deal valued at $44 billion in late April opened the social media giant’s door to a self-proclaimed free speech absolutist who advocates letting anyone say anything allowed by law on Twitter. For this reason, in early June, advocacy groups launched a campaign to stop Musk from going through with the purchase.
The breakup between the billionaire and the social media platform is viewed as far from friendly, signaling a Musk-Twitter tug-of-war that could be prolonged when legal action is pursued.
Stakeholders brace for impact
Musk's change of heart appeared to suggest some buyer's remorse. In retrospect, Musk bought 73.5 million shares from Twitter in April, at a cost of nearly $2.9 billion. This gave him a 9.2% stake in the company, sending Twitter shares up high to $51 and eventually plunging to $35 a month later, as his commitment came into doubt.
Twitter's chairman Bret Taylor 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.”
The platform's stock has lost more than a quarter of its value since late April and was last seen trading at $32.65, 40% below the price of $54.20 that Musk agreed to pay.
Significantly harming shareholder value as a result of this chaotic business decision, shareholders expressed their mixed sentiments online. Speaking out, a Harvard Law litigator articulated, “As a shareholder, I am hoping that @elonmusk just pays a hefty penalty to get out of the deal. As someone who uses @twitter, I don't want him owning the company.”
Twitter stocks may continue to tank as the story continues to develop, and as we all wait to see who will gain the upper hand by law.
