Days after the CEO of Tesla Inc. attempted to back out of the $44 billion transaction, Twitter Inc. retaliated against Elon Musk, accusing the richest man in the world of “knowingly” breaking an agreement to purchase the social media company.
Twitter stated in a letter to Musk dated Sunday and submitted to regulators on Monday that it had not violated the terms of the merger agreement, contrary to what Musk had claimed on Friday in order to cancel the deal.
The Tesla CEO was accused of having “knowingly, purposefully, willingly, and significantly broken the Agreement,” according to the lawsuit.
In the letter, Twitter said the deal was not terminated, adding, “Twitter demands that Mr. Musk and the other Musk Parties comply with their obligations under the Agreement, including their obligations to use their respective reasonable best efforts to consummate and make effective the transactions contemplated by the Agreement.”
The company has planned to sue Musk to force him to complete the deal, a threat he laughed off on Monday when he sent a series of tweets joking about Twitter and its threat to enforce the agreement in court. Twitter is planning to file a lawsuit early this week in Delaware, people familiar with the matter told the Reuters news agency.
Twitter said in the letter that the merger agreement remained in place, adding it would take steps to close the deal.
Twitter shares ended down 11.3 percent at $32.65, a 40 percent discount to Musk’s $54.20 bid and the biggest daily percentage drop in more than 14 months, erasing more than $3bn in value. They rebounded less than 1 percent in extended trading.
Traders short selling Twitter’s tumbling stock made $148m in mark-to-market profits on Monday, while short bets against Tesla resulted in $1.3bn in mark-to-market profits, according to S3 Partners, a technology and data analytics firm.
“Twitter’s board must contemplate the potential harm to its employee and shareholder base of any additional internal data exposed in litigation,” Benchmark analyst Mark Zgutowicz said.
Francis Pileggi, a corporate litigator with Lewis Brisbois in Delaware, said Musk could put the social media giant’s so-called “bots” front and centre in future litigation if he defends against Twitter’s lawsuit by claiming the company misrepresented the number of fake accounts.
“I’d be surprised if he’s prohibited from getting that information,” Pileggi said.
Pileggi said if the number of fake accounts is many times higher than the 5 percent estimated by Twitter, it could lead to negotiations for a reduced price for the social media platform.
Legal experts say the 16-year-old social media company has a strong legal case against Musk, but could opt for a renegotiation or settlement instead of a protracted court fight.
“We believe that Elon Musk’s intentions to terminate the merger are more based on the recent market sell-off than … Twitter’s ‘failure’ to comply with his requests,” Jefferies analyst Brent Thill wrote in a note.
“In the absence of a deal, we would not be surprised to see the stock find a floor at $23.5.”