Elon Musk will not pay $44 billion to buy social media platform Twitter, he announced Friday, citing the company “Material Adverse Effects.”
The deal-breakers include the amount of fake and spam Twitter accounts, and “the company’s declining business prospects and financial outlook.”
In a Friday letter to Twitter’s head lawyer, Vijaya Gadde, Musk’s attorney Mike Ringler described the legal justification for terminating the buyout offer.
“Mr. Musk is terminating the Merger Agreement because 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, and is likely to suffer a Company Material Adverse Effect,” Ringler wrote.
The lawyer said his client and financial advisors at Morgan Stanley had asked repeatedly for “critical information” from Twitter as early as May 9. Ringler added they have repeatedly asked since then for access to data about false or spam accounts on the platform.
“Twitter has not provided information that Mr. Musk has requested for nearly two months notwithstanding his repeated, detailed clarifications intended to simplify Twitter’s identification, collection, and disclosure of the most relevant information sought in Mr. Musk’s original requests,” the attorney claimed in his letter.
Musk insists that Twitter’s representations to the Securities and Exchange Commission contain either false or materially misleading information. Since the company declared in the merger agreement that it had not made any SEC filings since January 1 that contained any “untrue statement of a material fact,” falsifying data about fake or spam accounts would breach the merger agreement.
“Twitter’s representation in the Merger Agreement regarding the accuracy of its SEC disclosures relating to false and spam accounts may have also caused, or is reasonably likely to result in, a Company Material Adverse Effect, which may form an additional basis for terminating the Merger Agreement,” Musk’s attorney informed Twitter.
Musk will have to prove Twitter’s SEC representations amounted to an “unexpected, fundamental, permanent” negative development, University of Pennsylvania law professor Larry Hamermesh told Bloomberg.
Since Twitter was incorporated in the business-friendly state Delaware, the Delaware Chancery Courts will decide if a Material Adverse Event actually occurred. According to the Bloomberg report, Delaware’s courts have only recognized one Material Adverse Event — Fresenius SE’s $4.3 billion buyout offer for the drug manufacturer Akorn.