Tech titan Elon Musk is backing out of a $44 billion agreement to purchase social media platform Twitter.
The Tesla CEO said in a filing Friday afternoon that he believed Twitter was in material breach of multiple provisions of the April 25 sale agreement — including Musk’s request that the company share information about the number of fake and spam accounts on the social media 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 filing states.
Musk also charged Twitter with allegedly failing to continue to conduct its regular business — a breach of the purchase contract — noting it had fired two key, high-ranking employees while announcing it was laying off a third of its talent acquisition team.
In response, Twitter board chair Bret Taylor tweeted Friday the company intends to pursue legal action to close the transaction.
Musk had been hinting at his discomfort with the original purchase agreement within weeks of it being signed, tweeting about his concern about the volume of fake accounts on the site May 13.
Twitter has regularly disclosed in quarterly securities filings that it believes no more than 5% of the accounts on the site are fake or automated. And from the moment Musk began expressing fears about the pervasive existence of bots on Twitter, the company maintained that it satisfied its obligations under the terms of the purchase agreement.
Still, the stakes rose on June 6, when Musk’s attorneys filed a letter indicating that part of Musk's financing for the deal was contingent on his receiving the bot information to evaluate the business.
Musk “is clearly entitled to the requested data to enable him to prepare for transitioning Twitter’s business to his ownership and to facilitate his transaction financing,” the lawyers wrote.
On June 8, The Washington Post reported Twitter had subsequently given access to even more information, including a raw feed of account activity.
“The whole issue of spam on the platform has been an issue for years,” said Ann Lipton, a law professor at Tulane University. “It would be surprising if that’s what gave him cold feet now.”
On June 14, Twitter issued a statement saying it “has and will continue to cooperatively share information with Mr. Musk to consummate the transaction in accordance with the terms of the merger agreement...We intend to close the transaction and enforce the merger agreement at the agreed price and terms.”
Nevertheless, on Thursday, The Washington Post reported the deal was in jeopardy because Musk felt he could still not verify the number of bot accounts on the platform.
Some Twitter employees are expressing mixed feelings about Musk's exit from the deal.
"I guess it feels like we won," one employee who spoke on condition of anonymity told NBC News.
"But it feels like the end of the movie, where the characters are bloodied and bedraggled with a Michael Bay explosion behind them. We could see this was coming, but in the meantime he’s f---ing destroyed the company."
Many commentators believe that given Twitter's apparent compliance with Musk's information requests, the spat over bots was instead a pretext for Musk to walk away from the deal entirely. They note that since Musk agreed to purchase the company at $54.20 a share, Twitter's stock price has fallen to $36.81, shaving some $14 billion off its total value.
"If he were really concerned about the bot info, he’d sue," Lipton said. "It seems more likely that it's not really about that. Instead, he wants to claim Twitter is in breach of contract, so he doesn’t have to close."
Although both sides agreed to pay $1 billion should either party withdraw from the agreement, Columbia University law professor Eric Talley says it is not simply a matter of Musk paying $1 billion to walk away. According to the terms of the agreement, Twitter likely believes it would first be able to ask a judge to force Musk to purchase the company, under what is known as a "specific performance" clause.
"There’s a real question of whether the $1 billion break fee sits second fiddle to Twitter’s option to ask for specific performance," Talley said.
Talley also said the merger agreement explicitly notes that if Musk deliberately breaches the agreement, the $1 billion breakup fee is not the exclusive remedy.