Billionaire Elon Musk called off his deal to buy social media company Twitter, according to a filing on Friday with the Securities and Exchange Commission.
Skadden Arps attorney Mike Ringler said in a letter to Twitter's chief legal officer that “Twitter has not complied with its contractual obligations." For nearly two months, the company has failed to provide Musk with information about fake or spam accounts, the letter said.
The stock closed down 11.3% Monday, ending the day at $32.65.
"For Twitter this fiasco is a nightmare scenario and will result in an Everest-like uphill climb for (Twitter CEO Parag Agrawal) & Co. to navigate the myriad of challenges ahead around employee turnover/morale, advertising headwinds, investor credibility around the fake account/bot issues, and host of other issues abound,” Wedbush analyst Dan Ives wrote in a note on Monday.
Twitter contends Musk's argument for termination is "invalid and wrongful," according to a letter sent on behalf of the company by law firm Wachtell, Lipton, Rosen & Katz. Twitter is demanding Musk use his "best efforts" to complete the deal and says it reserves the right to force Musk to comply with the agreement.
"The Agreement is not terminated," the letter says. "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."
On Saturday, former U.S. President Donald Trump, formerly one of Twitter's more infamous users reportedly called Musk a “bulls--- artist” Saturday during a campaign rally in Alaska.
Trump said Musk told him he had voted for Trump for president but actually had never voted for a Republican before.
"I said, 'I didn’t know that,'" Trump said. "He told me he voted for me, so he’s another bulls--- artist."
All this comes as Twitter's stock has fallen sharply since the company's board accepted Musk's offer to buy the social media platform in April for $54.20 a share. On the day of the announcement, Twitter closed at $51.70 a share. On Friday, it closed at $36.81.
The Tesla and SpaceX CEO is also known for his polarizing online persona as his entrepreneurial endeavors.
He is popular on Twitter, where he has more than 100 million followers, and frequently chimes in on politics, talks business openly, and embraces the internet’s meme culture. Some of his tweets have landed him in legal trouble.
Who is Elon Musk?: What to know about the Tesla CEO who wanted to buy Twitter
Elon Musk mocks Twitter - in a tweet of course
Is this a case of he who laughs first, laughs last?
Musk might think so. On Monday, some 72 hours after wanting to break his deal with Twitter, Musk emerged back on the platform.
He tweeted four images of him laughing next to intriguing captions that read: "They said I couldn’t buy Twitter. Then they wouldn’t disclose bot information. Now they want to force me to buy Twitter in court. Now they have to disclose bot information in court."
Then Musk followed up the tweet with a picture of action star Chuck Norris playing chess with only a single pawn on his side of the board and a set of pieces on the other side, with Musk tweeting, "Chuckmate."
— Elon Musk (@elonmusk) July 11, 2022
Either this means Musk is back in full-on tweet mode, or he'll strategically pick his spots that no doubt his 100 million followers will be watching.
Can Elon Musk walk away from Twitter?
According to the filing with the SEC on April 25, the deal calls for Musk to pay Twitter a $1 billion break-up fee if he terminates the deal.
But Musk may not be able to just walk away. Twitter may be able to force Musk to complete the deal, legal observers say.
At issue is whether the prevalence of bots on the social media platform is “fundamental to Twitter’s business and financial performance” as Musk's lawyers have argued.
"The question is whether or not this is really material information," UCLA law professor James Park said. "It should be fairly obvious that there's potentially fake spam accounts at a company like Twitter."
“(Musk) can make this argument, but I think it's a weak one,” he said. “To me, this is just a pretext for him to pull out of the deal.”
And Twitter has “every incentive to enforce the deal,” Case Western Reserve business law professor Anat Alon-Beck told USA TODAY in an email.
“If they don’t at least attempt to force Musk to close, they’ll have his allegations of false statements hanging around their necks unless they contest his statements,” Alon-Beck said. “This fight is just beginning and only time will tell on how steep a penalty each side will pay to close this deal.”
Jennifer Grygiel, a professor at Syracuse University, noted that Musk may not be through with the deal yet.
“Who says he’s still not trying to acquire it?” Grygiel said. “We’re still very much in a limbo period and we have to wait and see where this all ends up.”
What is clear: Musk will have a legal battle on his hands. Park said the case should move “very quickly” through the Delaware Court of Chancery, with a trial and a decision "in just a few weeks.”
– Bailey Schulz and Terry Collins
Twitter users react to Elon Musk
Reaction on Twitter was mixed Friday.
Some made jokes about Musk’s change of plans.
Elon Musk is no longer buying Twitter because he realized he can get it for free in the App Store
— greg (@greg16676935420) July 8, 2022
Progressive nonprofit consumer advocacy organization Public Citizen said Musk terminating the deal “is what a win for free speech actually looks like.” Musk in April tweeted "I hope that even my worst critics remain on Twitter because that is what free speech means."
Attorney Richard Signorelli said he hopes Musk pays a “hefty penalty” to get out of the deal. In another tweet, Signorelli identified himself as a Twitter shareholder and said he is glad Musk is trying to back out.
One avid Twitter user who has yet to tweet about the letter: Musk.
– Bailey Schulz
GOP: 'Elon Musk isn't going to save us'
Conservatives rejoiced in April when Elon Musk made an unsolicited $44 billion bid for Twitter, vowing to restore “free speech” on the social media platform.
The response was more muted late Friday when it became clear that Musk would not be the savior the political right had hoped for.
In a regulatory filing, Musk said he was terminating the Twitter deal over a disagreement about how many spam accounts are on the platform.
Tom Fitton’s take? The conservative activist and president of Judicial Watch said Musk was ditching the Twitter deal because the company refused to disclose details of “its censorship operation.”
Charlie Kirk, founder, and president of the conservative nonprofit Turning Point USA tweeted: “Maybe Elon never intended to buy Twitter at all. Maybe he just wanted to expose it.”
Donald Trump Jr. declared that Musk walking away from the deal meant Twitter was caught lying about spam accounts. “So basically Twitter has a huge amount of spam accounts – way more than they let on – and has gotten busted for it!!!”
“Bottom line,” tweeted Florida GOP congressional candidate Lavern Spicer, “Elon Musk isn’t going to save us.”
Only actor James Woods sounded a more critical note, tweeting: “Musk failed us.” He later deleted the tweet.
It was a far cry from the rousing way conservatives cheered on Musk at the start.
Conservative commentator Dinesh D’Souza began lobbying Musk to buy Twitter in January. His idea: That Musk would take over and censor liberals to teach them a lesson on “the imperative of free speech.”
When D'Souza again urged Musk to buy a major social media platform to dramatically shift “the political and cultural landscape,” Musk replied: “interesting ideas.”
Soon Musk was buying up shares of Twitter and being egged on by other conservative figures.
After making a bid for Twitter, the billionaire Tesla CEO picked up millions of followers, many of them conservatives who for years have accused Twitter, Facebook, and Google of anti-conservative bias.
Conservative commentator Brent Bozell, founder, and president of the Media Research Center, tweeted: “Free at last. Free at last. Conservatives may be free at last!”
As of early Friday night, Bozell had not tweeted a reaction to the news that Musk was ending his bid for Twitter.
Over on Donald Trump's social media platform Truth Social, the former president posted: "THE TWITTER DEAL IS DEAD, LONG LIVE THE 'TRUTH.'"
– Jessica Guynn
Musk deal termination a Twitter 'disaster'
“Never in a million years would I have imagined this,” said Daniel Ives, senior equity research analyst at Wedbush Securities.
Ives predicts "an uphill battle for Twitter" and "a lot of legal twists and turns."
"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 $1 billion at a minimum,"
Ives said Musk should likely share in some of the blame.
“It’s going to be a black eye for Musk as well," Ives said. "He doesn’t come out smelling like roses.”
Syracuse University's Grygiel says she believed from the start that a powerful executive like Musk may have had cruel intentions for pursuing Twitter.
“It turns out that he didn’t actually need to own it to destroy it," Grygiel said.
– Terry Collins
Who is Elon Musk?: What to know about the Tesla CEO who wanted to buy Twitter
How much was Musk going to buy Twitter for?
Musk was to acquire Twitter in a deal worth $44 billion. Musk said he had lined up $46.5 billion in financing to buy Twitter. Once the deal was complete, Twitter was to become a privately held company.
When did Musk agree to buy Twitter?
Musk’s $44 billion deal was confirmed in late April after he spent nearly three months buying up Twitter shares to increase his stake in the company.
At the time, the world's richest person said he wanted to “make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans."
– Bailey Schulz
Why isn't Elon Musk buying Twitter?
In a word, bots.
Musk claims Twitter is vastly understating the prevalence of spam and fake accounts on the platform.
Twitter says bots make up just 5% of its monetizable daily active users. In Friday's regulatory filing, Musk says that Twitter appears to be “dramatically understating” that figure. Musk previously contended that the count is 20% or higher.
The fact that @elonmusk’s net worth has fallen by $65 billion since he announced the Twitter share purchase — making financing and equity much harder to raise — surely has nothing to do with his calling off the @Twitter deal. pic.twitter.com/MYT27H2osZ
— Robert Frank (@robtfrank) July 8, 2022
Some observers say Musk is using bots as a pretext to pull out of the deal.
– Bailey Schulz
How is the Twitter board responding?
Twitter plans to sue Musk and is committed to closing the transaction, according to Bret Taylor, chair of Twitter's board.
"We are confident we will prevail in the Delaware Court of Chancery," he said in a tweet.
One former Twitter executive told the Financial Times: “It seems Twitter is willing to go to war to make this deal happen.”
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
In its latest quarterly report, Twitter warned that its financial condition "may suffer" if the merger does not close. Tumbling stock prices, low investor confidence, stockholder lawsuits, and business disruptions were just a few of the possibilities the company laid out.
Twitter employees were warned not to make any public statements. An internal memo from Twitter’s general counsel obtained by The Verge directed staffers to refrain from "Tweeting, Slacking, or sharing any commentary about the merger agreement.”
– Terry Collins and Bailey Schulz
Contributing: Sara Edwards
This article originally appeared on USA TODAY: Elon Musk may be sued by Twitter; Donald Trump weighs in on deal