Elon Musk has called off his $44bn deal for Twitter, setting up a legal battle with the social media company over the aborted deal.
Mr Musk’s lawyers said in filings that Twitter had failed or refused to respond to multiple requests for information on fake or spam accounts on the platform, which is fundamental to the company's business performance.
The Tesla boss’s representatives also objected to the loss of senior executives at Twitter since the deal was finalised.
“Three executives have resigned from Twitter since the Merger Agreement was signed: the Head of Data Science, the Vice President of Twitter Service, and a Vice President of Product Management for Health, Conversation, and Growth,” lawyers wrote in a filing, calling the departures “a material breach” of the deal.
Brett Taylor, Twitter’s chairman, pledged to fight Mr Musk in court to force him to complete the deal, which was agreed in April.
“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,” Mr Taylor tweeted, “We are confident we will prevail.”
Shares of Twitter fell 7pc in late trading to $34.25. Mr Musk had agreed to buy Twitter for $54.20 per share.
Under the terms of the agreed deal, Mr Musk is on the hook for a $1bn termination fee.
Dan Ives, an analyst at Wedbush Securities, said: “This is a disaster scenario for Twitter and its Board as now the company will battle Musk in an elongated court battle to recoup the deal and/or the breakup fee of $1bn at a minimum.”
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.
— Bret Taylor (@btaylor) July 8, 2022
Mr Musk had previously threatened to halt the deal unless the company showed proof that spam and bot accounts were fewer than 5pc of users who see advertising on the social media service.
Last month, Twitter allowed Musk access to its “firehose”, a repository of raw data on hundreds of millions of daily tweets. That proved to be not enough to address Mr Musk’s doubts about the deal.
Signs that the takeover could be on the verge of collapse first emerged earlier on Friday after a report that Musk had “stopped engaging” in talks about the buyout.
The Washington Post said that Mr Musk’s camp had stopped speaking to one likely financial backer about the deal. Public records show Oracle boss Larry Ellison, current Twitter shareholder Prince Al-waleed bin Talal, cryptocurrency company Binance and venture firms Sequoia Capital and Dubai-based Vy capital, have all publicly pledged equity to Mr Musk for the buyout.
Previously Twitter bosses said around 5pc of accounts were inauthentic, a figure Mr Musk has hotly disputed. In May he claimed that around 20pc of the site’s 330m active accounts were fake, before calling for a Securities and Exchange Commission investigation into Twitter’s 5pc figure.
Managers have refused to share their methodology.
Wedbush analyst Ives said Twitter “will now likely trade in the $25-$30 range when the stock opens on Monday with no deal likely. This soap opera has seen many twists and turns and now ultimately Twitter (and its board) goes back to the drawing board.”
Market observers had thought the fake account issue was a ploy by Mr Musk to lower his offer price.
A group of investors have previously sued the billionaire for allegedly engaging in “market manipulation” to drive down the takeover price.
Twitter was contacted for comment.
Musk retains a 9pc stake in Twitter, making him the company’s biggest shareholder.