Recently, Elon Musk announced to the world that he was walking out of the $44 billion deal to buy Twitter after the social media giant failed to give out appropriate information about the number of spam and fake accounts. Twitter instantly responded by saying it would sue Musk if he failed to uphold the deal.
The potential collapse of the deal was just the most recent development in a tale between the Tesla CEO and one of the most powerful social media platforms, and it may mark the dawn of a prolonged court struggle.
Twitter appeared prepared to go to great lengths to complete the acquisition, which the company's board had approved and which CEO Parag Agrawal had adamantly stated he wanted to complete.
In response, Bret Taylor, president of Twitter's board, tweeted:
Twitter's stock declined by 5% on Friday to $36.81, way lower than the $54.20 Musk agreed to pay. On the other hand, Tesla's stock increased by 2.5% to $752.29 per share. Twitter's stock kept declining even after the market closed and Musk's letter was made public, while Tesla's stock increased.
Musk’s interest in buying Twitter first surfaced in late March when he communicated with members of its board and co-founder Jack Dorsey—and informed them he was buying up shares of the company and wanted to join the board, make Twitter private, or establish a rival enterprise.
On the 4th of April, it was announced that Musk had become the company's largest shareholder after buying a 9.2% stake for about $3 billion.
Thereafter, Musk was offered a seat on the Twitter board. However, six days later, CEO Parag Agrawal tweeted that Musk would not be joining the board after all.
The Deal Breaker
Musk has argued that Twitter has failed to provide appropriate information about spam and fake accounts.
Twitter has given some information, but it has limitations or strings attached, which means the information provided remains inadequate.
After the initial resistance, Twitter eventually gave access to the 8 inventory APIs, which now Musk claims have a lower rate limit than what Twitter usually shells out for its large customers.
Musk also claims that the information provided was not enough to perform an analysis that is rudimentary to the company's future performance.
Musk also points out that Twitter is in material breach of multiple clauses of the agreement and appears to have made false and deceiving representations, upon which the whole merger agreement relies.
A Legal Dispute?
There might be a legal dispute as Bret Taylor, president of Twitter, promised to take a legal course to enforce the acquisition.
Musk will have to pay a $1 billion break-up amount in case the sale falls through.
The ups and campo Musk first offered to buy Twitter, for which the board espoused a "bane lozenge" plan in an attempt to block the deal.
In the Periphery
When Musk initially proposed to acquire Twitter, the board attempted to block and hamper the deal.
Eventually, Twitter changed tactics and conceded to Musk’s final offer of the $44 billion buyout.
Musk planned the acquisition, with the buyout proposed to be funded by $21 billion in cash, $12.5 billion of marginal loans secured against Musk's 16% stake in Tesla, together with $13 billion in loans from banks.
Later, the funding arrangement was recalibrated as Musk reduced the loan amount against his Tesla shares to $6.25 billion over concerns that Musk might sell some portion of his stock in Tesla to fund the Twitter deal.
While financing for the sale was being arranged, Musk abruptly stated that he was delaying the transaction until Twitter could demonstrate that false and spam bots make up less than 5% of its total traffic.