The rumors were confirmed. Billionaire Elon Musk backed out of buying Twitter in an initial deal valued at $44 billion. The decision, made official this Friday (8), was recorded in a letter published on the website of the SEC, the US Securities and Exchange Commission.
In response, Twitter announced that it will file a lawsuit against the businessman so that he fulfills the process of acquiring the social network.
Why did Musk give up
The legal team representing Elon Musk argues that there was a breach of contract due to the lack of clarity in the return of information requested by the businessman about the number of fake and spam accounts on Twitter. The billionaire wanted proof that less than 5% of profiles fit these conditions — he thinks he has a lot more.
“For nearly two months, Mr. Musk has requested data and information necessary to ‘make an assessment’ independent of the prevalence of fake accounts or spam on the platform,” reads the SEC filing. “Twitter failed or refused to provide the information.”
In the letter, attorney Mark Ringler also claims that Twitter failed to comply with the agreement because it contains “materially inaccurate representations.” When the billionaire asked for data on fake accounts, Twitter claimed that it was not possible to calculate the volume of these profiles using only public information.
“While this analysis remains, it appears that several of Twitter’s statements involving its mDAUs (metric for monetizable daily users) are false or materially misleading,” Ringler pointed out.
The document also indicates that the drop in Twitter shares on the stock exchange may have something to do with the matter, as Musk would be considering whether this drop in business prospects and the financial future would be reasons for the end of the agreement.
The drop in the deal, according to Musk, also occurred because Twitter laid off top executives and a third of its talent acquisition team. In doing so, the company would have violated a clause in the agreement regarding its obligation to “preserve substantially intact the material components of its current organization”.
According to CNBC, Twitter shares closed at US$36.81 (R$193.45 in direct conversion) in the North American market.
Twitter says it can sue Musk
In a tweet, the current chairman of the board of directors of the social network, Bret Taylor, said that the company will do everything for the entrepreneur to keep his word and complete the acquisition operation.
“The Twitter Board is committed to closing the transaction at the price and terms agreed with Mr. Musk, and plans to take legal action to enforce the settlement. We are confident we will prevail in Delaware court,” Taylor wrote.
According to the Financial Times, Parag Agrawal, Twitter’s chief executive, was already willing “to go to war to make the deal happen”. People close to the negotiation would have said that the process has made the executive more nervous than usual and that he was being “more aggressive internally”.
Decision in the courts
The withdrawal of the purchase of Twitter by Musk should still yield many chapters, given that the parties involved must enter a legal battle.
In 2021, when the social network announced its monetization strategies, Twitter coined a metric for investors, the mDAUswhich corresponded to more engaged users with the potential to acquire some of the platform’s paid services, such as Super Follows.
An inaccurate number of mDAUs could give false impressions about the profit potential of the platform, since an account does not necessarily represent a potential buyer, and could be bots (robots) or even fakes.
It is worth remembering that under the terms defined in the purchase agreement, Musk will have to pay US$ 1 billion if the process is not finalized for reasons such as problems securing funding for the previously defined US$ 44 billion or impediment of the transaction by regulators.
The severance clause, however, would not apply in cases where Musk decides to cancel the deal by himself, explained the Reuters news agency.
The Novel of Twitter Buying
Elon Musk indicated interest in the platform earlier this year. In April, the billionaire formalized a $44 billion acquisition proposal — $7 billion above the platform’s market cap at the time, which was $37 billion.
Less than three months after submitting the proposal, Musk said the social network “thwarted” his requests to learn more about the user base.
Still in June, the businessman temporarily suspended the purchase of Twitter while he could not be assured that less than 5% of the platform’s accounts are fake.
At the time, the Tesla and SpaceX owner even sent a letter to Twitter claiming he had the right to make his own measurement of fake and spam accounts. Even so, he highlighted that he was still interested in the business.
In the meantime, Musk would have had access to the platform’s data, but he was unable to prove the number of fake profiles, according to a report this week by the Washington Post. Sources familiar with the matter noted that the purchase deal was at “serious risk” for these reasons.
Musk’s team’s doubts about the numbers of fake and spam profiles indicate they don’t have enough information to assess Twitter’s prospects as a business, the report says.
A Twitter spokesperson previously commented that the social network was collaborating with Musk on this data and that the company intended to “close the transaction and make the deal at the agreed price and terms.”
Parag Agrawal also went so far as to point out that the platform suspends more than half a million accounts that appear fake each day, often before they are even seen, and blocks millions a week that fail the checks to ensure they are controlled by humans and not by humans. a software.
Still in June, Twitter pointed out that the waiting period for the purchase to be closed had come to an end.
Under the Hart-Scott-Rodino antitrust law of 1976, after the deal is announced, the parties must meet a waiting period so that regulators can assess whether they have immediate restrictions on the transaction. Compliance with the standard was an indispensable requirement for the purchase to proceed.
*With collaboration of Felipe Mendes