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Elon Musk and Twitter Battle over $44 Billion Merger Agreement

Both sides contend they were wronged. Who will prevail? A Delaware court will decide.

In the latest installment of the Elon Musk-Twitter saga, Musk wants to terminate his $44 billion deal to buy Twitter. Musk’s legal counsel delivered the news to Twitter’s chief legal officer, Vijaya Gadden, in a letter dated July 8 which was also filed with the Securities and Exchange Commission. The letter states that Musk is terminating the merger agreement because “Twitter is in material breach of multiple provisions” of the agreement. Musk believes that Twitter “made false and misleading representations” which he relied upon when agreeing to acquire the social media platform. Further, Musk’s legal counsel says that, should the merger be completed, Musk would “suffer a Company Material Adverse Effect.”

Musk alleges Twitter didn’t provide requested data

Elon Musk
Source: Bigstock Photo

The primary issue is that Musk asked Twitter to provide “all data and information” needed to properly evaluate the transaction. Specifically, Musk wanted information about how many spam and fake accounts the Twitter platform counted among their monetizable daily active users (mDAU). Musk also asked for information about how Twitter identifies and suspends spam and fake accounts, daily measure of mDAU for the last eight quarters, board materials related to Twitter’s mDAU calculations, and materials related to Twitter’s financial condition.

“This information is fundamental to Twitter’s business and financial performance and is necessary to consummate the transactions contemplated by the Merger Agreement because it is needed to ensure Twitter’s satisfaction of the conditions to closing, to facilitate Mr. Musk’s financing and financial planning for the transaction, and to engage in transition planning for the business. Twitter has failed or refused to provide this information. Sometimes Twitter has ignored Mr. Musk’s requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information,” wrote Mike Ringler of Skadden, Arps, Slate, Meagher & Flom LLP, on behalf of Musk.

In addition, Musk and his legal counsel believe that, even if Twitter were to have provided the requested information, there are other potential material breaches of concern. For example, if the information Twitter provided to the SEC about its mDAU and business prospects was inaccurate, false or misleading, Musk has grounds to terminate the agreement. In another example, the merger agreement requires that Twitter preserve “the material components of its current organization.”

Firing key executives including the revenue product lead and the general manager of consumer, and announcing the layoff of a third of the company’s talent acquisition team potentially change the structure and financial prospects of the organization. Along with these changes, three key executives have resigned including the head of data science, the vice president of Twitter service, and a vide president of product management for health, conversation and growth.

Twitter sues Musk to enforce merger agreement

In a July 8 tweet, Twitter board chairman Bret Taylor said the company will continue to pursue the merger based on the original terms of the agreement, and they will pursue legal action if Musk does not follow through in his acquisition of the company.

On July 12, Twitter sued Elon Musk for balking at the $44 billion deal. The lawsuit alleges that Musk committed a range of violations that have brought down the value of Twitter, caused chaos inside and outside the company, and that Musk has not acted in good faith. In addition, Twitter said that Musk secretly purchased shares of their stock without proper disclosure to the SEC, according to Reuters.

“In April 2022, Elon Musk entered into a binding merger agreement with Twitter, promising to use his best efforts to get the deal done. Now, less than three months later, Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests,” said Twitter in the complaint filed in a Delaware court.

“Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he – unlike every other party subject to Delaware contract law – is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” the complaint said.

The first hearing is scheduled for July 19 in Wilmington, Delaware with Chancellor Kathaleen St. J. McCormick presiding. Twitter asked for an expedited process because of the current economic situation and the fact that the company is effectively in limbo with a buyer, said the Wall Street Journal.

Musk’s rebuttal

On July 15, Musk’s legal team filed a motion to oppose expedited court proceedings.

“This Court should reject Plaintiff Twitter, Inc.’s (“Twitter”) unjustifiable request to rush this $44 billion merger case to trial in just two months. Twitter’s bid for extreme expedition rests on the false premise that the Termination Date in the merger agreement (“Agreement”) is October 24, glossing over that this date is automatically stayed if either party files litigation. By filing its complaint, Plaintiff has rendered its supposed need for a September trial moot,” read Musk’s complaint.

Twitter stock

Meanwhile, Twitter’s stock value continues to ebb and flow with the status of the merger agreement. On July 11, Twitter stock was valued at $32.65, near its 52-week low of $31.30. Since Twitter filed suit, the social media platform has seen a bump in stock value. As of 7:59 p.m. EDT July 15, Twitter stock was valued at $37.74 per share.

Source: Google

Insider Take

Raise your hand if you saw this coming. We did too. This merger agreement has been a roller coaster since March when Musk reported to the SEC that he had purchased a 9.6% stake in Twitter. Now the deal debacle has devolved into “he said, they said.” Musk, in his characteristic, impulsive, volatile style, seems determined to fight the merger as a matter of principle. Twitter, on the other hand, feels they held up their end of the bargain and that Musk’s machinations have negatively impacted Twitter on a variety of levels. It seems unlikely that the two parties will agree on anything at this point. It will be up to the Delaware Court of Chancery to determine which way the deal goes.

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