Why Elon Musk Backed Out Of Twitter Deal!

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It’s official – Elon Musk moved to officially terminate his $44 billion deal to buy Twitter!

Find out why he backed out, and if he can really do that!


Buyer’s Remorse : Elon Musk Backs Out Of Twitter Deal!

On Friday, July 8, 2022, Elon Musk moved to terminate his $44 billion deal to buy Twitter.

According to the official SEC filing, Musk is ending the deal because he believed that Twitter was “in material breach of multiple provisions” of the April 2022 agreement he signed to buy Twitter.

For the past month, Mr. Musk has been clear that he views Twitter’s non-responsiveness as a material breach of the Merger Agreement giving him the right to terminate the Merger Agreement if uncured.

Thus, Mr. Musk has been clear about his requests, his right to seek such information, and his view regarding Twitter’s material breach of the Merger Agreement.

Elon Musk’s lawyer pointed out to Twitter’s Chief Legal Officer, Vijaya Gadde, that Twitter failed to provide “much of the data and information” repeatedly requested by Musk “over the past two months” :

  • Information related to Twitter’s process for auditing the inclusion of spam and fake accounts in mDAU (monetizable Daily Active Users)
  • Information related to Twitter’s process for identifying and suspending spam and fake accounts.

Why Elon Musk Backed Out Of Twitter Deal!

Twitter shares fell nearly 6% in after hours trading immediately following the news, after ending the day down 5%.

Twitter board chair Bret Taylor responded that they will pursue legal action against Elon Musk for reneging on the deal :

The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement.

We are confident we will prevail in the Delaware Court of Chancery.

The April 2022 deal actually allows Elon Musk to terminate the deal, but he has to pay a cool $1 billion termination fee. It looks like he is trying to get out of that, by blaming Twitter for not providing him with information.


Elon Musk Backing Out Of Twitter Deal : Was It Ever In Doubt?

The writing was on the wall right after Elon Musk agreed to purchase Twitter for $44 billion.

Instead of celebrating the purchase with champagne, he started raising doubts about actually going through with the deal.

Even though he claimed he wanted to buy Twitter to eradicate bots, he started to complain that Twitter did not provide him with the data he needs to evaluate the number of bots and fake accounts on Twitter.

Then in May – just a month after agreeing to buy Twitter – he put the deal “on hold”. In June, he directly threatened to walk away from the deal.

His contradictory moves are perplexing considering the fuss he kicked up to buy Twitter – buying a ton of shares, and then turning down a board seat while threatening a hostile bid.

Even more perplexing – Elon Musk explicitly waived due diligence, in his eagerness to sign the April 2022 contract to purchase Twitter.

Why Elon Musk Backed Out Of Twitter Deal!

It was not like Musk didn’t know about Twitter’s bot and spam problem. He knew. He also chose to waive due diligence… and he chose to sign a contract.

It is possible that Musk is pressuring the Twitter board to renegotiate the purchase price, now that Twitter shares have fallen significantly. Twitter shares have fallen about 32% – down from $54.20 when he announced the offer, to just $37 on Friday, when he moved to terminate the deal.

It is also possible that Musk is forced to renegotiate the deal, because Tesla shares that he relied on to finance Twitter’s purchase has taken a beating since he signed the deal. Tesla shares have fallen about 31% – down from $985 when he announced the offer, to just $682 when he moved to terminate the deal.

Ultimately, the Twitter deal may go through at a lower price, or this will end up in court with an expensive breakup lesson for Elon Musk.


Elon Musk – Twitter Saga : A Timeline

Here is a quick timeline summary of the Elon Musk – Twitter saga :

March 28 : Elon Musk says he seriously thinking about building the “next Twitter”

April 4 : Twitter announces that Elon Musk had purchased 9.2% of Twitter shares, worth about $2.9 billion

April 5 : In an effort to ward off a hostile bid, Twitter CEO Parag Agrawal offered Musk a Twitter board seat, which he accepted.

April 10 : Elon Musk reverses his decision to join the Twitter board, implying he intends to mount a hostile bid.

April 14 : Elon Musk offers to pay $54.20 per share to buy 100% of Twitter, valuing the company at $43.4 billion.

April 15 : Twitter board announces a poison pill defence to block Musk’s anticipated hostile bid.

April 25 : Twitter board accepted Elon Musk’s offer to purchase the entire company at $54.20 per share, and take it private. Both parties agreed to pay a $1 billion termination fee, if either party reneges on the deal.

May 13 : Elon Musk announces that the Twitter deal is “temporarily on hold” pending “details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.” He then quickly “clarified” that he is “still committed to acquisition”.

June 6 : In a legal letter to Twitter Chief Legal Officer, Vijaya Gadde, Elon Musk alleged that Twitter was “actively resisting and thwarting his information rights”, and that he reserves the right “not to consummate the transaction” and “to terminate the merger agreement”.

July 8 : Elon Musk officially moved to terminate his Twitter purchase agreement.


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