Elon Musk Bid to Buy Twitter: Why Did Musk Cancel $44 Billion Deal?

July 9, 2022

Why Elon Musks$ 44 billion deal to buy Twitter could end up in court? — Photo Credit: VOA Learning English

Elon Musk is going to stop his $44 billion (£36 billion) offer to buy Twitter because they say he broke the deal.

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Elon Musk, CEO of Tesla and the richest man in the world, intends to withdraw his $44 billion offer to acquire microblogging platform Twitter.

Musk stated in a filing with the US Securities and Exchange Commission (SEC) that he wished to terminate the agreement because Twitter was in “material breach” of their contract and had made “false and misleading statements” during negotiations.

Meanwhile, the social media company has stated that it will pursue legal action to enforce the agreement. Musk’s decision to back out of the deal is the latest development in a lengthy saga that began in April when he decided to purchase Twitter.

Why Musk is withdrawing from the agreement?

Musk asserts that Twitter has not provided him with the information he requested in May regarding the prevalence of fake or spam accounts on its platform. At the time, he stated that the deal was “temporarily on hold” until he received data from Twitter indicating that spam and bot accounts make up less than 5% of its total users.

Musk’s legal team stated in a filing with the US SEC that “for nearly two months, Mr. Musk has sought the data and information required to make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform…Twitter has either been unable or unwilling to provide this information. Sometimes Twitter ignored Mr. Musk’s requests, sometimes it rejected them for seemingly unjustified reasons, and sometimes it claimed to comply while providing Mr. Musk with incomplete or unusable information.”

Musk also stated that he was leaving because Twitter fired senior executives and a third of its talent acquisition team, in violation of Twitter’s obligation to “maintain substantially intact the material components of its existing business organization.”

While these are the two primary reasons Musk cited to the SEC for terminating the deal, a number of external factors may have also influenced his decision. Since the announcement of the deal, global tech stocks have undergone a massive correction. On Friday, the closing price of Twitter’s stock on the New York Stock Exchange was $36.81, compared to $51.70 on April 25 when the company accepted Musk’s offer. This represents a decrease of nearly 29 percent. Since the announcement of the deal, Tesla’s stock price has dropped more than 24%.

Second, it was unclear how Musk would fund the $44 billion transaction. Musk informed the US Securities and Exchange Commission in May that the deal would include $33.5 billion in equity, up from an earlier commitment of $27 billion. He had also sold Tesla stock for approximately $8.5 billion and secured $7 billion from investors, including Saudi Prince al-Waleed bin Talal. However, he informed the SEC that he was continuing to seek additional financing and was in discussions with Twitter shareholders, including former Twitter CEO Jack Dorsey, about the possibility of retaining their company stakes. It is unknown whether Musk has raised sufficient funds to finance the transaction.

What happens next?

The social media platform has made it clear that it will pursue legal action to enforce the terms of the agreement, which could lead to a lengthy legal battle between Musk and Twitter.

“The Twitter Board is committed to closing the transaction at the agreed-upon price and terms with Mr. Musk and intends to take legal action to enforce the merger agreement. “We are confident that we will prevail before the Delaware Court of Chancery,” said Bret Taylor, chairman of Twitter. The original merger agreement contains a $1 billion termination fee.

According to Reuters, disputed mergers and acquisitions that land in Delaware courts result in the parties renegotiating deals or the acquirer paying the target a settlement to walk away, rather than a judge ordering a transaction to be completed.

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