Celebrity billionaire Elon Musk's $44-billion Twitter buyout deal, won't have a happy Hollywood ending, after all.
The acquisition, which started as a hostile bid, avoided an ugly takeover battle, only to end up in a legal dispute with Musk bailing out on Friday.
Social media users were only salivating the prospect of Musk as Twitter's new boss, but the latest charges about the micro-blogging site's 'false and misleading' information of fake accounts, shows that the transaction was nothing but an underdone potato.
At the heart of the tussle is the question of identifying genuine users from fake accounts, which is fundamental to investors' monetization dreams. But since signing the deal, Musk has been vocal that Twitter was likely undercounting spam and bot accounts. Twitter claims that just about 5% of its monetizable daily active users are spam accounts, but Musk's team believe Twitter is making 'materially inaccurate representations' and that its public disclosures of actual users is either false or 'materially misleading.'
This is Musk's view is Twitter failing to comply with the merger's contractual obligations, but critics see the fresh accusations as yet another tactic to lower the bid price. As it is, Twitter's scrip is trading at a 35% discount to Musk's $54.20 offer price.
Strangely, Musk, often known for announcing price-sensitive decisions on Twitter without caring about consequences, remained zip-lipped either to follow protocol or to avoid embarassement from his 100 million followers, and instead allowed his legal deputies to break the bad news.
Did Musk noodle over the $44-billion bid to begin with, or whether he nosed out damning details after submittting bid is unclear, but executing the deal seems like a matter of self-interest for Twitter.
For years, the social media platform has been struggling to break the buck, and is desparate to take control 'back from Wall Street,' going by founder Jack Dorsey's own admission. Twitter Chairman Bret Taylor's spontaneous and decisive view to sue Musk and ensure he walks the dotted line, even if it means enforcing the merger's 'specific performance' clause (which calls for a Delaware judge to force Musk into buying the company) should be seen in this backdrop.
"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," Taylor tweeted.
As per the terms of the deal, Musk must pay $1 billion break-up fee for walking away from the transaction, but Musk's team cited an exception that 'material adverse effects' have occurred, which is to say, he owes Twitter nothing.
For nearly two months, Musk sought information necessary to 'make an independent assessment of the prevalence of fake or spam accounts on Twitter's platform.' Last month, following his access to a 'firehose' -- Twitter's internal repository of raw data -- he's been dropping hints to walk away citing 'very significant' questions about the number of fake accounts.
"This information is fundamental to Twitter's business and financial performance and is necessary to consummate the transactions contemplated by the merger agreement because it is needed to ensure Twitter's satisfaction of the conditions to closing to facilitate Musk's financing and financial plannig for the transaction, and to engage in transition planning for the business," Musk's lawyers noted in a letter to the US Securities and Exchange Commission (SEC) on Friday.
It added, "Musk is terminating the merger agreement because Twitter is in material breach of multiple provisions of that agreement, appears to have made false and misleading representations upon which Musk relied when entering into the merger agreement and is likely to suffer a Company Material Adverse Effect."
Musk also argued that Twitter's decision to fire two top executives, certain employee layoffs and hiring freezes breached the merger agreement. It's also worth noting that Musk is being investigated by the SEC for the timing of his disclosures related to Twitter stock acqusitions earlier this year.