The world's richest person, Elon Musk, confirmed late on Friday that he is terminating his $44 billion deal to buy Twitter Inc (NYSE:TWTR) because he said the social media company has breached multiple provisions of the merger agreement.
In an instant reaction on the social media platform, Twitter chairman, Bret Taylor, said the board firm's plans to 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," he said.
In a filing, Musk's lawyers noted 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.
READ: Twitter takeover in jeopardy as Musk gives the cold shoulder
"Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr Musk relied when entering into the Merger Agreement," the filing said.
Musk, the chief executive officer of electric vehicles giant Tesla Inc (NASDAQ:TSLA), also said he was walking away because Twitter fired high-ranking executives and one-third of its talent acquisition team, breaching the company's obligation to "preserve substantially intact the material components of its current business organization."
Musk's decision is likely to result in a protracted legal tussle between the billionaire and the San Francisco-based company.
Shares of Twitter closed down 5% at $36.81 in extended trading on Friday, around 35% below the $54.20 per share Musk agreed to buy the company for in April 2022.
Twitter's shares had surged after Musk took a stake in the company in early April, but after he agreed on April 25 to buy Twitter, the stock began to fall within days as investors speculated Musk might walk away from the deal.
After Musk clinched the deal to purchase Twitter he then put the buyout on hold until the social media company could prove that so-called spam bots account for less than 5% of its total users.
The acquisition contract calls for Musk to pay Twitter a $1 billion break fee if he cannot complete the deal for reasons such as the acquisition financing falling through or regulators blocking the deal. The fee would not be applicable, however, if Musk terminates the deal on his own terms.
In a quick reaction to the news, Daniel Ives, an analyst at Wedbush, said Musk's filing was bad news for Twitter.
"This is a 'code red' situation 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. We see no other bidders emerging at this time while legal proceedings play out in the courts," he said in a note to clients.
Contact the author at jon.hopkins@proactiveinvestors.com