Elon Musk, the chief executive officer of Tesla and the world’s richest person, is terminating his $US44 billion ($A64 billion) deal to buy Twitter, saying the social media company had breached multiple provisions of the merger agreement.
Twitter’s chairman, Bret Taylor, said on the social media platform the board planned to pursue legal action to enforce the merger agreement.
“The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk…,” he wrote.
In a filing, Musk’s lawyers said Twitter had failed or refused to respond to multiple requests for information on fake or spam accounts on the platform, which is fundamental 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,” the filing said.
Musk also said he was walking away because Twitter fired high-ranking executives and a third of the talent acquisition team, breaching the company’s obligation to “preserve substantially intact the material components of its current business organisation”.
Musk’s decision is likely to result in a protracted legal tussle between the billionaire and the 16-year-old San Francisco-based company.
Disputed mergers and acquisitions that land in Delaware courts more often than not end up with the companies re-negotiating deals or the acquirer paying the target a settlement to walk away, rather than a judge ordering a transaction be completed.
That is because target companies are often keen to resolve the uncertainty around their future and move on.
Twitter, however, is hoping court proceedings will start in a few weeks and be resolved in a few months, according to a person familiar with the matter.
“Twitter is well-positioned legally to argue that it provided him with all the necessary information and this is a pretext to looking for any excuse to get out of the deal,” said Ann Lipton, associate dean for faculty research at Tulane Law School.
Shares of Twitter were down six per cent at $US34.58 in extended trading. That is 36 per cent below the $US54.20 per share Musk agreed to buy the company for in April.
Twitter’s shares surged after Musk took a stake in the company in early April, shielding it from a deep stock market sell-off that slammed other social media platforms.
But after he agreed on April 25 to buy Twitter, the stock within a matter of days began to fall as investors speculated Musk might walk away from the deal.
With its tumble after the bell on Friday, Twitter was trading at its lowest since March.
The announcement is another twist in a ‘will-he-won’t-he?’ saga after Musk clinched the deal to purchase Twitter in April but then put the buyout on hold until the social media company proved spam bots account for less than five per cent of its total users.
The contract calls for Musk to pay Twitter a $US1 billion break-fee if he cannot complete the deal for reasons such as the acquisition financing falling through or regulators blocking the deal.
The break-fee would not be applicable, however, if Musk terminates the deal on his own.
Musk’s abandonment of the deal and Twitter’s promise to vigorously fight to complete it casts a pall of uncertainty over the company’s future and its stock price during a time when worries about rising interest rates and a potential recession have hammered Wall Street.
Daniel Ives, an analyst at Wedbush, said Musk’s filing was bad news for Twitter.
“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,” he wrote in a note to clients.