Elon Musk’s decision to back out of his plan to buy Twitter could end up costing him $1 billion or more.
Musk, the world’s wealthiest person, notified Twitter on Friday that he is terminating the acquisition some three months after it was first announced.
The Tesla founder had offered to buy the company at $54.20 per share, a purchase that came with a $44 billion price tag. After Twitter’s board agreed to the offer, things quickly got complicated, with the billionaire accusing the social media company of obfuscating the truth about how many fake or spam accounts operate on the platform.
Last month, Musk’s legal team submitted a Securities and Exchange Commission filing that reiterated his request for information about the percentage of spam bots, or nonusers, that comprise Twitter.
“Musk believes the company is actively resisting and thwarting his information rights (and the company’s corresponding obligations) under the merger agreement,” the SEC filing reads.
MUSK THREATENS TO TERMINATE TWITTER DEAL IF SPAM BOT DATA NOT PROVIDED
“This is a clear material breach of Twitter’s obligations under the merger agreement, and Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement,” Musk’s legal team added.
Now that Musk has announced his intention to pull out of the deal, there are questions about how that process will go, including how much it could cost both sides. Included in the preliminary acquisition contract is a $1 billion reverse termination fee, meaning that Musk might be on the hook for a 10-figure payment.
The reality of the situation is that Musk can’t just back out of the deal simply because he changed his mind on the acquisition and get away with just paying the fee, which would be manageable for someone worth nearly $220 billion as of Monday.
Paying the fee and walking away would only be applicable if there is a reason the purchase can’t go through due to issues such as third-party financing concerns or regulatory intermediation, according to CNBC. Musk, though, would be able to bail on the Twitter deal if he can prove the social media company misled him, a tack that he appears to be pursuing.
Soon after Musk announced that he was pulling out of the deal, Twitter’s board announced that it would sue him should he move forward with scrapping the agreement.
“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,” said Twitter Chairman Bret Taylor in a Tweet.
Twitter has the ability to sue Musk for billions of dollars for breach of contract. A protracted lawsuit might end up proving to be bruising for both parties, so Twitter and Musk could end up settling, and Twitter could agree to sell the company for a lower price than the $44 billion.
Twitter’s stock has tumbled precipitously given the uncertainty surrounding the purchase and general turmoil in the stock market. Shares of Twitter fell more than 6% in post-market trading after it was announced Musk was trying to back out of the deal, to well below Musk’s $54.20 per share offer.
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Dan Ives, managing director at Wedbush Securities, told the Washington Post last month that Musk might be using the alleged issue with spam bots and their proportional representation on the platform as the “material breach” Musk needs to bail on the deal.
Twitter claims that fake spam bot accounts make up less than 5% of its users, although Musk claims that at least 20% of accounts are spam or fake. The Tesla founder has argued that he should be given a better deal should that be the case.
