Actions do have consequences even if you are the richest man in the world. Elon Musk’s decision to terminate the $44 billion acquisition deal with Twitter will not be A simple walk away.
On Friday, Musk sent a letter to the US Securities and Exchange Commission informing them of his plans to terminate the agreement. According to the letter, Twitter was guilty of a material breach of multiple provisions of the agreement and making false and misleading representations that might hurt Musk.
Should the SEC approve and Musk terminates the deal he will pay a $1 billion breakup fee.
Musk had requested data on fake accounts on Twitter, which was part of the first quarter 2022 report the company released that showed it was less than 5 percent of all monetisable users on the microblogging platform.
There are grounds where a reverse breakup fee applies, for example when there is an outside reason a deal can’t be concluded. This could be a result of third-party financing worries or regulatory intermediation.
Read also: Elon Musk notifies SEC of Twitter deal termination
Musk can also back out if there is a fraud, in the case where it is found that incorrect information has been supplied which could have a “material adverse effect.” Experts say Twitter’s market dip, losing more than $9 billion as a result of the ongoing sell-off, would not count as a valid reason for Musk to terminate the deal.
“I doubt that will be a strong argument seeing that Twitter tried to block the sale and Elon Musk insisted on the deal and pursued the purchase terms,” Adetola Onayemi, chief executive officer of Norebase said.
Twitter saw its stock drop 5 percent in after-hours trading after the news of the letter. The stock has fallen sharply since the Twitter board accepted Musk’s offer to buy the company in Africa for $54.20 a share. The stock closed at $51.70 a share on the day the acquisition deal was announced. On Friday, it closed at $36.81.
Experts say Twitter would be compelled to file a lawsuit against Musk because doing otherwise would mean they have his allegations of false statements hanging around their necks.
Bret Taylor, chairman of Twitter said on the platform on Friday that the board will pursue legal action to enforce the merger 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 Taylor.
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