But Twitter chairman Bret Taylor said the company remains committed to closing the deal at the agreed price and plans to take legal action to enforce the agreement.
“We are confident that we will win in the Delaware Court of Chancery,” Taylor wrote.
Twitter shares fell about 6% after hours on Friday.
In a letter released by the Securities and Exchange Commission, Skadden Arps attorney Mike Ringler said “Twitter failed to honor its contractual obligations.”
Ringler stated that Twitter did not provide Musk with the relevant business information he requested, as Ringler said the contract required it. Musk has previously said he wants to evaluate Twitter’s claims that about 5% of its monetized daily active users (mDAUs) are spam accounts.
“Twitter was unable or refused to provide this information,” Ringler said. “Sometimes Twitter has ignored Mr. Musk’s requests, sometimes it has denied them for reasons that seem unreasonable, and other times it has claimed compliance by providing Mr. Musk with incomplete or unusable information.”
Ringler also said in the letter that Twitter violated the merger agreement because it allegedly contains “materially inaccurate representations.” This accusation is based on Musk’s own prior review of spam accounts on the Twitter platform. Twitter stated that it is not possible to calculate the number of spam accounts based on publicly available information alone, and that a panel of experts is conducting a review to reach the 5% figure.
“While this analysis is ongoing, all indications are that some of Twitter’s public disclosures regarding its mDAU are either false or misleading,” Ringer said.
“Despite public speculation about this, Mr. Musk has not waived his right to view Twitter data and information simply because he chose not to request that data and information prior to the merger agreement,” Ringer added. “In fact, he negotiated the access and information rights under the Merger Agreement specifically so that he could review the data and information that is important to Twitter’s business before funding and completing the transaction.”
He also claimed that Twitter violated its obligations under the agreement to obtain Musk’s consent before changing its business as usual, pointing to recent layoffs at the company.
While Musk is now officially trying to back out of the deal, the saga is likely far from over.
Under the terms of the agreement, Musk agreed to pay $1 billion if he refused. But as Twitter’s chairman pointed out, the company could try to force Musk to honor his original deal by suing him for leaving if they dispute that his reasoning should allow him to terminate the contract.
Twitter has reason to insist that Musk stick to its original terms. The stock fell significantly after the board announced that it had accepted his offer to buy the company at $54.20 a share. On the day of this announcement, the stock ended the trading day at $51.70 per share. Twitter shares were worth $36.81 at market close on Friday.
Musk also appears to be paying attention to the share price, according to the letter, “and is considering whether the company’s deteriorating business and financial outlook is a material adverse effect on the company, giving Mr. Musk a separate and clear basis for terminating the agreement to merger”. . “