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Elon MuskTesla CEO TSLA.O and the world’s richest person said on Friday he was terminating his $44 billion deal to buy Twitter TWTR.N because the social media company violated several provisions of the merger agreement.
Twitter Chairman Bret Taylor said on the microblogging platform that the board plans to take legal action to enforce the merger agreement.
“Twitter’s Board of Directors is committed to completing the transaction at the price and terms agreed to with Mr. Musk…” he wrote.
In a filing, Musk’s attorneys said Twitter failed or refused to respond to multiple requests for information about fake accounts or spam on the platform, which is fundamental to the company’s business performance. company.
“Twitter is in material breach of several provisions of this agreement, appears to have made false and misleading statements upon which Mr. Musk relied in entering into the merger agreement,” the filing states.
Musk also said he was walking away because Twitter terminated senior executives and a third of the talent acquisition team, violating Twitter’s obligation to “preserve material components of its current business organization substantially intact.” “.
Musk’s decision will likely lead to a lengthy legal battle between the billionaire and the 16-year-old San Francisco-based company.
Contested mergers and acquisitions that land in Delaware courts most often result in the companies renegotiating deals or the acquirer paying the target a settlement to walk away, rather than a judge ordering a transaction to be concluded. Indeed, target companies are often eager to resolve the uncertainty surrounding their future and move forward.
Twitter, however, hopes that the legal proceedings will begin in a few weeks and be resolved in a few months, according to a person familiar with the matter.
There are many precedents for a renegotiation of the agreement. Several companies revised the prices of agreed acquisitions when the COVID-19 pandemic broke out in 2020 and caused a global economic shock.
In one case, French LVMH retailer LVMH.PA threatened to back out of a deal with Tiffany & Co. The US jewelry retailer agreed to drop the acquisition price from $425 million to $15.8 billion.
“I would say that Twitter is in a good position legally to say that it has provided it with all the necessary information and that is a pretext to look for any excuse to withdraw from the agreement,” said Ann Lipton, associate dean. for faculty research at Tulane Law School.
Shares of Twitter fell 6% to $34.58 in extended trading. That’s 36% below the $54.20 per share Musk agreed to buy Twitter in April.
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Twitter shares surged after Musk took a stake in the company in early April, shielding it from a stock market sell-off that hit other social media platforms.
But after agreeing on April 25 to buy Twitter, the stock began to fall within days as investors believed Musk might walk away from the deal. With its tumble after the Friday bell, Twitter was trading at its lowest since March.
The announcement is another twist in a saga of willpower after Musk struck the deal to buy Twitter in April but then put the takeover on hold until the social media company proves spam bots represent less than 5% of its total users.
The contract provides that Musk will pay Twitter a $1 billion break if it can’t complete the deal for reasons such as failed acquisition funding or regulators blocking the deal. However, the severance fee would not apply if Musk terminates the deal on his own.
Musk’s abandonment of the deal and Twitter’s promise to fight vigorously to complete it cast a shadow of uncertainty over the company’s future and its stock price at a time when concerns over the rise interest rates and a possible recession hammered Wall Street.
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Shares of online advertising rivals Alphabet GOOGL.O, Meta Platforms META.O, Snap SNAP.N and Pinterest PINS.N have seen their shares fall 45% on average in 2022, while Twitter’s stock n fell only 15% during this period, buoyed in recent months by the Musk deal.
Wedbush analyst Daniel Ives said Musk’s filing is bad news for Twitter.
“This is a nightmare scenario for Twitter and its board, as the company will now face Musk in a lengthy court battle to recover the deal and/or the minimum $1 billion breach fee. “, he wrote in a note to clients.
(Reporting by Greg Roumeliotis; Additional reporting by Chavi Mehta and Manas Mishra in Bengaluru; Sheila Dang in Dallas; Dawn Chmielewski in Los Angeles; Hyunjoo Jin and Katie Paul in San Francisco; Noel Randewich in Oakland, California; David Shepardson in Washington; and Tom Hals in Wilmington, Delaware; Writing by Anna Driver; Editing by Sriraj Kalluvila and Lisa Shumaker)