Elon Musk “knowingly” breached the acquisition agreement Twitter says, as it fires back at the world’s richest man and former suitor
The firm in a letter sent to Musk and filed with the SEC, insisted that he “knowingly” breached an agreement to buy Twitter.
Elon Musk has already responded to Twitter’s insistence that it will ‘enforce’ the deal, with a series of memes in which he openly mocked Twitter’s legal warnings.
“Mr. Musk’s and the other Musk Parties’ purported termination is invalid and wrongful, and it constitutes a repudiation of their obligations under the Agreement,” the platform wrote. “Contrary to the assertions in your letter, Twitter has breached none of its obligations under the Agreement, and Twitter has not suffered and is not likely to suffer a Company Material Adverse Effect.”
Musk said he was walking away because Twitter fired high-ranking executives and one-third of the talent acquisition team, breaching Twitter’s obligation to “preserve substantially intact the material components of its current business organisation.”
He also cited the unknown number of fake accounts and bots.
But Twitter is having none of it.
“The purported termination is invalid for the independent reason that Mr. Musk and the other Musk Parties have knowingly, intentionally, willfully, and materially breached the Agreement, including but not limited to Sections 6.3, 6.8, and 6.10 thereof,” the platform’s legal team stated.
“The Agreement is not terminated, the Bank Debt Commitment Letter and the Equity Commitment Letter remain in effect, and Twitter demands that Mr. Musk and the other Musk Parties comply with their obligations under the Agreement, including their obligations to use their respective reasonable best efforts to consummate and make effective the transactions contemplated by the Agreement (including by taking all steps necessary to obtain a favourable outcome under the United Kingdom’s National Security and Investment Act 2021), the Bank Debt Commitment Letter, and the Equity Commitment Letter,” it said.
“As it has done, Twitter will continue to provide information reasonably requested by Mr. Musk under the Agreement and to diligently take all measures required to close the transaction,” the platform said. “Twitter reserves all contractual, legal, and other rights, including its right to specifically enforce the Musk Parties’ obligations under the Agreement.”
It is clear this matter is heading to the courts, people familiar with the matter told Reuters that Twitter is planning to file a lawsuit early this week in Delaware.
Twitter’s shares ended down 11.3 percent at $32.65, a 40 percent discount to Musk’s $54.20 bid and the biggest daily percentage drop in more than 14 months.
And Toby Clothier, head of global thematic and strategy at Mirabaud Equity Research, issued a bleak warning about Twitter’s shares following Musk’s exit.
“There seems to be some confusion about the current state of play with regard to this situation,” noted Clothier. “After an uncharacteristically long silence on Twitter and elsewhere, Elon Musk has come out with US law firm Skadden, Arps, Slate, Meagher & Flom behind him saying he is walking away from the bid for Twitter because he has not had enough data to be comfortable about the percentage of users that are (ro)bots.”
“Twitter, in turn, has taken on Wachtell, Lipton, Rosen & Katz to argue he must go through with the deal as agreed ($54.20) and that he has not only had all the information he needs, but that he has no legal basis to walk away,” noted Clothier.
“In summary, as far as Musk is concerned, there is no deal, but as far as Twitter is concerned, it is business as usual. The two sides are very far apart at this juncture,” said the man from Mirabaud Equity Research.
“Where do we go from here? The undisturbed price of Twitter was about $39 per share,” said Clothier. “The stock is now at $34, but it had a profit warning, and it is not impossible that it has another one in the pipeline given the tumult and employee turnover this situation has created – amidst a deteriorating ad-spend backdrop globally, as well as user flight from Twitter.”
“The Twitter share price could go as low as $25-$30 if the deal is truly off and if it does indeed warn again – as we suspect,” Clothier predicted. “Given it is due to report in two weeks, we do not have long to wait. We also have to bear in mind it also now has a top-three shareholder (Musk) who will, presumably, sell his stock in due course if he finds the business so unattractive – which is unhelpful from a technical perspective.”
“On the other hand, if Twitter’s lawyers prevail in the argument that Musk must deliver on his promise – having signed the Merger Agreement and offered $54.20 per share and been supplied with all the relevant information – then there is potentially a situation where Twitter could double from the high $20s in due course,” Clothier added.
“This eventuality would also put potentially very significant pressure on Tesla, as this is Musk’s primary/only source of funds, and he has clearly not sold anywhere near enough at this point to fund the portion of the bid that accrues to him,” said Clothier.
“This is, at this stage, not the central/most likely outcome,” he said. “But equally, it is also not completely impossible, so Tesla holders should keep a close eye on this situation as it develops.”
“So far, most of the twists and turns have been rather unpredictable, and this pattern will probably continue,” Clothier concluded. “The only thing that is certain is that the legal fees on both sides will be quite spectacular. Let the games commence!”