Musk Officially gives a new Notice to Terminate the Purchase of Twitter.
TL: DR
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Elon Musk officially says he wants to end his $44 billion contract to buy Twitter.
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Musk’s Lawyer claims Twitter did not meet the merger agreement's terms.
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Bret Taylor, Twitter’s board chair, does not accept terminating the contract and is still committed to closing the deal at a price offered by Elon Musk with plans to pursue legal action to enforce the agreement.
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The Companies will face quickstart legal proceedings in October.
Introduction
In April, Elon Musk declared his intent to buy Twitter for $44 billion – perhaps the year's most significant "tech talk." However, the Tesla and SpaceX exec intends to dissolve the acquisition of Twitter, according to the letter sent out by the billionaire's lawyer on his behalf after data provided by the company was claimed to be misleading and false. Musk has cited new reasons to end the deal with Twitter after the comments made by Peiter Zatko.
Why was Elon Musk Interested in Buying Twitter?
At the start, Elon liked the idea of having his own media platform, but no one thought he would offer Twitter $44 billion to buy their platform rather than building his from scratch. He bought a 9.2% stake in the company right before he made the offer. As a result, he was offered a seat on the board, but he declined it, and called the company the "town square" of the internet. The billionaire put on hold his plans to buy the company because it has numerous fake accounts on the platform.
The Reason Why Elon Musk is Opting Out of the $44 Billion Deal
Following the letter of termination of contract issued in July, Elon Musk has officially notified and filed a motion with the Securities and Exchange Commission (SEC) to dissolve his $44 billion acquisition of Twitter because of the ‘whistleblower’ comments made by Zatko, the former security head for Twitter. In the letter filed for Musk and his investment partners at Morgan Stanley, Musk sought to cancel the takeover due to a 'material violation of multiple provisions of the original merger contract,’’ which they tagged wrong and invalid.
According to Ringler, "Sometimes Twitter ignored Mr. Musk's requests, sometimes they rejected these for reasons that appear unjustified, and sometimes it claimed to comply while giving Mr. Musk incomplete or unusable information.”
Generally, Musk's team said that Twitter failed to provide them with information on:
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Twitter's auditing process for the inclusion of spam and fake accounts in mDAU
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Twitter's identification process in recognizing fake and spam accounts
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The daily measures of mDAU in the last eight quarters
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Board materials relating to twitter's mDAU calculations
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Materials on Twitter's financial conditions.
In a letter to Vijaya Gadde, Twitter’s chief legal officer, Musks’ team cited the whistleblower report by Peter Zatko, a former security executive. Zatko claimed that the Twitter executives had no interest in finding out the number of fake accounts on the platform. These allegations give more reasons to terminate the deal if the notice is “determined to be invalid for whatsoever reason.” The continuous questions on Twitter's breach of conduct show the onus on the SEC or the courts to decide whether or not the reasoning is adequate and justified. How this would be moved forward or not could be disastrous for Twitter because they have cut executive jobs and shifted its business approach entirely.
The Deal with Both Companies Right Now
As twitter's board indicated that they would do, the company could seek to hold Musk to his original contract by suing him for walking away if they do not agree to his intent to walk away. In a different SEC Filing, Twitter did respond to Musk’s latest ‘purported termination, saying it is solely based on statements made by a third party. While the analysis is ongoing, all indications show that several of Twitter's public disclosures regarding its mDAUs are either wrong or highly misleading. By the terms of the agreement, Musk agreed to pay $1 billion if he didn't do his part of the deal. Musk found this as a reason to officially terminate the deal, and his decision to end the contract sets the stage for a legal battle for the giants in October.
Conclusion
From the look of things, it seems the saga is far from over. With the stage set for the legal proceedings in October, no one knows or can determine the stakes of the proceedings, until it is decided at the Delaware court of chancery. It’s either going to be in favor of Elon or He will be obligated to proceed with the merger agreement or pay a $1b breakup fee.
Author: M. Olatunji, Gate.io Researcher
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