Billionaire Elon Musk wants to end his $44 billion deal to buy Twitter, according to a letter a lawyer sent on his behalf to the company’s chief legal officer on Friday.
Shares of Twitter fell about 7% after hours on Friday.
In the letter, disclosed in a Securities and Exchange Commission filing, Skadden Arps attorney Mike Ringler charged that “Twitter failed to comply with its contractual obligations.”
Ringler alleges that Twitter did not provide Musk with the relevant business information he requested, as Ringler said the contract would require. Musk previously said he wanted to evaluate Twitter’s claims that about 5% of its monetizable daily active users (mDAU) were spam accounts.
“Twitter failed or refused to provide this information,” Ringler claimed. “Twitter has sometimes ignored Mr. Musk’s requests, sometimes denied them for what appear to be unjustified reasons, and sometimes claimed to comply by providing Mr. Musk with incomplete or unusable information.”
Ringler also charged in the letter that Twitter violated the merger agreement because it allegedly contained “materially inaccurate statements.” This accusation is based on Musk’s own preview of spam accounts on the Twitter platform. Twitter said it was not possible to calculate spam accounts from public information alone and that a team of experts was conducting a review to arrive at the 5% figure.
“While this analysis is ongoing, all indications are that several of Twitter’s public disclosures about its mDAUs are either false or materially misleading,” Ringer said.
He also alleged that Twitter breached its obligations under the agreement to obtain Musk’s consent before changing its usual business, citing recent layoffs at the company.
While Musk now officially wants to back out of the deal, this saga is likely far from over.
Under the terms of the settlement, Musk agreed to pay $1 billion if he quit. But Twitter could still try to hold Musk to his original deal, or get a bigger payout by suing him to quit, if they dispute that his motives should let him back out of the contract.
Twitter has reason to seek to make Musk abide by its original terms. Shares have fallen sharply since the board announced it had accepted his offer to buy the company at $54.20 a share. On the day of this announcement, the stock closed the trading day at $51.70 per share. Shares of Twitter hit $36.81 at the close on Friday.
Twitter did not immediately respond to a request for comment.
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