Elon Musk drops $44 billion deal to buy Twitter

What’s up

Elon Musk sent a letter to Twitter saying he is ending a deal to buy the influential social media company for $44 billion.

why does it matter

Twitter says it still plans to close the deal, so Musk’s decision is setting off a legal battle between the company and the billionaire.

What is the next

Twitter says it plans to pursue legal action to enforce the deal.

Billionaire Elon Musk said on Friday that he is coming out of a $44 billion deal to buy Twitteradding another twist to an ongoing saga in which the mercurial entrepreneur presented himself as the savior of free speech on the influential social network.

Musk, who also manages Tesla and SpaceX, said in a letter sent by his lawyer that Twitter violated several parts of the merger agreement by not providing more information about how it estimates the number of spam accounts on its platform. Twitter reported that in the first quarter, less than 5% of Twitter’s 229 million daily users were fake or spam-focused, but Musk says that number may not be accurate.

“This information is critical to Twitter’s financial and business performance and is necessary to consummate the transactions contemplated by the Merger Agreement because it is necessary to ensure Twitter’s satisfaction of closing conditions, to facilitate Mr. Musk for the transaction. and to be involved in the transition planning for the deal,” reads the letter to Twitter from Musk’s attorney, Mike Ringler.

Bret Taylor, chairman of Twitter’s board of directors, tweeted friday that the company still intends to close the deal. “The Twitter Board is committed to closing the transaction at the price and terms agreed with Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Court of Chancery,” Taylor tweeted.

The letter also outlines other information that Musk says Twitter has not turned over, including information about the company’s financial condition and more details about how Twitter calculates the daily users who can see ads. The letter says Twitter provided Musk with some data, but calls some of the information “minimally useful.” Musk also alleges that an initial analysis suggests that some of Twitter’s public disclosures about daily users are “false or materially misleading.” The letter further alleges that Twitter violated another part of the agreement that said the company had to seek and obtain consent before deviating from “its obligation to conduct its business in the normal course” after the social network fired key executives, fired employees and froze hiring.

The decision to end the deal ends a tumultuous period for Twitter, which found itself in the crosshairs after Musk revealed a roughly 9% stake in the company in early April. Musk appeared on the verge of joining Twitter’s board of directors, but dropped out before proposing to buy the entire company and make it private. The board enthusiastically accepted Musk’s offer after he secured highly leveraged funding for the deal.

Musk, the richest person in the world, said he wanted to acquire Twitter because he believes the company no longer adheres to the principles of free speech, a term he uses loosely and often. On April 26, he tweeted“By ‘freedom of speech,’ I simply mean what corresponds to the law.”

According to the First Amendment to the US Constitution, free speech refers to protection from government interference. This does not apply to companies like Twitter.

Dan Ives, an analyst at Wedbush Securities, tweeted on Friday that Musk’s action is a “disaster scenario for Twitter and its board, as the company will now fight Musk in a lengthy court battle to recover the settlement and/or or the $1 billion breakup fee at a minimum.”

Carolina Milanesi, principal analyst at market intelligence and strategy consultancy Creative Strategies, said forcing Musk to buy Twitter could be a mistake for the social network.

“What company wants to be owned by someone who doesn’t?” said Milanesi. “Personally, I never believed that Musk had a concrete, workable plan to reinvigorate Twitter and its revenue.”

Twitter has struggled to compete for ad dollars and users with larger social networks like Facebook and TikTok. The company’s calculation of daily users who can see ads wasn’t always accurate. In April, Twitter revealed that it had inflated its numbers of daily active users since 2019 because of an error involving how it calculated linked accounts.

The possible collapse of the deal could also prompt the Securities and Exchange Commission to further scrutinize Musk, who has run afoul of regulators for tweeting about a plan to take Tesla private. Musk’s disclosure of his participation on Twitter was belatedly and wrongly filed.

Musk criticized the SEC, which claimed that Musk and Tesla had done “false and misleading“statements when he tweeted on August 7, 2018, that he had “guaranteed financing” to make the electric car company private.

The SEC struck a deal with Musk and Tesla that required fines of $20 million each. It also required that Musk’s tweets be reviewed by a lawyer if they contained relevant information about the company. In April, a federal judge denied Musk’s call for oversight to be lifted.

Investors never fully believed that Musk would buy Twitter. While the company’s shares rose after Musk revealed his stake, they didn’t hit the $54.20 price he promised to pay. (The price includes the number 420, slang for marijuana, and a Musk joke. His proposal to take Tesla private included a suggestion that a deal could be done for $420 a share.)

Twitter shares immediately dropped nearly 7% in after-hours trading to $34.25 a share on news that Musk wanted to end the deal.

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