What Happened to the Twitter-Elon Musk Deal?
Tesla CEO says he is seeking to terminate his $44 billion deal to buy the social-media platform, setting up a possible legal battle
Elon Musk said he is seeking to terminate his $44 billion deal to buy Twitter Inc., TWTR -5.10% nearly two months after saying the deal was “on hold” over his questions about the number of spam and fake accounts on the platform.
Twitter “is in material breach of multiple provisions of that agreement,” according to a letter from Mr. Musk’s lawyer filed with securities regulators. The letter also accused the company of making “false and misleading representations” when entering into the agreement.
Twitter said it intends to close the transaction at the agreed price of $54.20 a share, setting up a possible legal battle over what comes next for the social-media platform.
Here’s what to know.
Why did Elon Musk say he was pulling out of his deal to buy Twitter?
Mr. Musk said in a regulatory filing Friday that the company hadn’t provided the necessary data and information he needs to assess the prevalence of fake or spam accounts on the platform. In the filing, Mr. Musk’s lawyers said that Twitter had made material changes to the business without his consent, such as laying off some staff and implementing a hiring freeze.
What will happen next in the Twitter deal?
Twitter’s board on Friday said it would pursue legal action to enforce the terms of the deal at the price and terms originally agreed upon. “We are confident we will prevail in the Delaware Court of Chancery,” Bret Taylor, chairman of the board, tweeted.
Can Twitter sue Elon Musk?
Yes, and likely will. Under the terms of the agreement, Mr. Musk agreed to pay a $1 billion reverse termination fee to Twitter if the deal falls apart, though that is only triggered under certain scenarios including if his debt financing falls through or regulators try to block the deal. The merger agreement caps at $1 billion the amount either side can sue for damages for. So Twitter’s legal options now are to sue for a maximum of $1 billion, a fraction of what it stands to lose out on should the deal fall apart, or sue for specific performance. If it sues for specific performance and Mr. Musk agrees to settle, that could involve a payment of more than $1 billion.
What’s the current price of the Twitter stock?
Twitter shares closed at $36.81 on Friday, down 18% from the day Mr. Musk disclosed his offer. They fell 4.8% in after-hours trading following the disclosure.
Why were Twitter’s spam accounts a point of contention for Elon Musk?
Mr. Musk has said the spam and fake accounts issue is fundamental to Twitter’s business and financial performance, and that getting clarity is necessary for him to line up financing for the deal.
He tweeted in May that the deal was “on hold” over details about spam and fake accounts on the platform. The following month, he threatened in a letter to the company to end the deal if Twitter didn’t provide data he had requested. He has said the deal wouldn’t proceed unless he could see such data to evaluate the company’s claims about how many of its users are spam or fake accounts.
Many observers have speculated that Mr. Musk was using the fake accounts issue as leverage to renegotiate or exit the acquisition, given that he was aware of the issue long before agreeing to buy Twitter, and yet waived due diligence on the business prior to inking the deal.
Twitter has long estimated that spam or fake accounts represent fewer than 5% of its monetizable daily active users, which it most recently pegged at 229 million. Mr. Musk has said he thinks the number could be closer to 20%. Twitter provided access to the platform’s full fire hose of tweets, but data specialists say analyzing it isn’t easy.
Mr. Musk, as one of Twitter’s highest-profile users, is particularly susceptible to seeing spam on the platform, according to researchers.
In the regulatory filing, Mr. Musk’s lawyer said, “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.”
What are the financial stakes in the deal?
Mr. Musk had agreed in April to buy Twitter for $44 billion, or $54.20 a share.
He said he didn’t care about making money from the deal: “Having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization. I don’t care about the economics at all,” Mr. Musk said in an April interview.
Mr. Musk, as he lined up financing for the deal, sold more than $8 billion in Tesla Inc. stock.
Shares in the electric-vehicle maker advanced more than 2% after Mr. Musk said he was done with his Twitter pursuit that had annoyed some of the billionaire’s Tesla fans.
Also potentially losing out in the deal are financial institutions looking to make it happen. Twitter’s bankers would stand to make tens of millions in advisory fees on closing, according to a previous regulatory disclosure. Goldman Sachs Group Inc. would stand to make around $80 million, including $15 million upfront, while JPMorgan Chase & Co. could make $53 million, including $5 million upfront.
Why was Elon Musk interested in the deal?
Mr. Musk has called Twitter the “de facto town square,” and said he wanted to buy the platform because he thought it was important for there to be “an inclusive arena for free speech.”
Mr. Musk, who has over 100 million followers on the platform, indicated he would seek to make substantial changes to the social-media site, including softening the way it moderates content and supporting an edit button for tweets—something the company was already working on. He also said he would try to eliminate bots, rely less on advertising and enable encrypted messaging. He said he planned to take the company private, which would have made it easier to implement desired changes without shareholder pressure.