But Twitter’s board chair Bret Taylor said the company is still committed to closing the deal at the agreed-upon price and plans to pursue legal action to enforce the agreement.
“We are confident we will prevail in the Delaware Court of Chancery,” Taylor wrote.Twitter shares were down about 6% after hours on Friday.
In the letter, disclosed in a Securities and Exchange Commission filing, Skadden Arps attorney Mike Ringler said that “Twitter has not complied with its contractual obligations.”
Ringler claimed that Twitter did not provide Musk with relevant business information he requested, as Ringler said the contract would require. Musk has previously said he wanted to assess Twitter’s claims that about 5% of its monetizable daily active users (mDAUs) are spam accounts.
“Twitter has failed or refused to provide this information,” Ringler claimed. “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.”
Ringler also charged in the letter that Twitter breached the merger agreement because it allegedly contains “materially inaccurate representations.” This accusation is based on Musk’s own preliminary review of spam accounts on Twitter’s platform. Twitter has said it’s not possible to calculate spam accounts from solely public information and that a team of experts conducts a review to reach the 5% figure.
“While this analysis remains ongoing, all indications suggest that several of Twitter’s public disclosures regarding its mDAUs are either false or materially misleading,” Ringer alleged.
“Despite public speculation on this point, Mr. Musk did not waive his right to review Twitter’s data and information simply because he chose not to seek this data and information before entering into the Merger Agreement,” Ringer added. “In fact, he negotiated access and information rights within the Merger Agreement precisely so that he could review data and information that is important to Twitter’s business before financing and completing the transaction.”
He also claimed Twitter breached its obligations under the agreement to get Musk’s consent before changing its ordinary course of business, pointing to recent layoffs at the company.
While Musk is now officially seeking to walk away from the deal, this saga is likely far from over.
Under the terms of the agreement, Musk agreed to pay $1 billion if he backs out. But as Twitter’s board chair indicated they would do, the company can seek to hold Musk to his original deal by suing him for walking away if they dispute that his reasoning should let him out of the contract.
Twitter has reason to seek to hold Musk to his original terms. The stock has fallen considerably since the board announced it had accepted his offer to buy the company at $54.20 per share. On the day of that announcement, the stock ended the trading day at $51.70 per share. Twitter shares sat at $36.81 as of Friday’s market close.
Musk is apparently paying attention to the stock price, too, according to the letter, “and is considering whether the company’s declining business prospects and financial outlook constitute a Company Material Adverse Effect giving Mr. Musk a separate and distinct basis for terminating the Merger Agreement.”