Twitter Stock Plummets After Musk Backs out of Twitter Acquisition Deal

The Twitter logo is seen on a smartphone with Elon Musk in the background. (Rokas Tenys/Shuttertock)

Shares of Twitter fell by over 10 percent on Monday following Elon Musk’s announcement that he intended to back out from a deal to acquire Twitter for $44 billion, raising speculation about likely future litigation against the Afrikaner billionaire.

On Friday, Tesla CEO Elon Musk gave notice to Twitter that he intended to end his deal to acquire the social media company at $54.20 per share, saying that Twitter had not upheld its contractual obligations. Musk made the announcement via a letter sent by his lawyer to the company’s chief legal officer. The letter was disclosed by a Securities and Exchange Commission filing.

In the letter, Musk’s lawyers claimed that “Twitter has not provided information [concerning the prevalence of spam accounts] that Mr. Musk has requested for nearly two months notwithstanding his repeated, detailed clarifications intended to simplify Twitter’s identification, collection, and disclosure of the most relevant information sought in Mr. Musk’s original requests.”

Musk reached a deal to acquire Twitter on April 25th. However, the deal has been challenged by Musk since very shortly after it was reached, with the investor frequently lamenting that he was misled by Twitter’s internal data about the prevalence of spam accounts, or “bots,” on the platform.

Twitter claims that only 5 percent of its monetizable daily active user (mDAU) base consists of bots, but Musk has argued that the number is much higher, and that Twitter, in misrepresenting the total number of bots, has misled him in such a way as to void the agreement.

The future for both Musk and Twitter is uncertain, but it is likely that a legal battle will ensue over the billionaire investor’s decision to walk out of the deal. Notably, the initial agreement stipulated a $1 billion fee for whichever party reneges on the deal, which Musk will likely contest by claiming that Twitter’s claims about mDAUs violated the deal. The result of the dispute will likely hinge on whether the courts agree with Musk’s suggestions about Twitter’s bot accounts.

There have been incidents where courts ordered investors to acquire a company when they wished to back out of a deal, but such an outcome for the Musk-Twitter dispute would be the largest such forced acquisition seen to date. In 2001, a Delaware court ordered Tyson to acquire beef distributor IBP, Inc. for the originally agreed-upon price of $3.2 billion—a much smaller sum than the value of Musk’s $44 billion Twitter deal.

“This is going to be a long and ugly court battle (Twitter has already hired counsel) ahead in which the fake account/bot issue will be scrutinized for all to see and casts a dark cloud over Twitter’s head in the near term,” a team of analysts led by Daniel Ives said on behalf of Wedbush in a client note.

The normally outspoken Musk has been unusually mum about the matter on his own personal Twitter account. However, he has intermittently mocked Twitter for allegedly concealing the prevalence of bots, sharing a meme that described the Twitter acquisition process from his perspective, implying that Twitter would face embarrassment at having to disclose information about the prevalence of bots on the platform in court.