Elon Musk has withdrawn from the purchase agreement with Twitter. He said he did not want to fulfill the agreed $44 billion deal because the company was concealing the number of its fake accounts. Twitter then announced legal action. Musk is now facing a billion-dollar lawsuit.
Tesla CEO Elon Musk has already threatened several times to let his planned Twitter takeover fall through. He repeatedly cited the unclear number of fake accounts on the platform as the reason.
Now Musk makes good on his threats and resigned from the purchase agreement with Twitter. As reported by the Reuters news agency, the Tesla CEO said that the short message service had violated several agreements.
Musk’s lawyers also said in a letter that Twitter failed or refused to respond to inquiries about fake or spam accounts. That information, however, is essential to a deal, they said.
Elon Musk ‘owes shareholders $17 billion’
Twitter CEO Bret Taylor then tweeted that the company would take legal action to enforce the purchase agreement. To that end, he wrote: “The Twitter Board is committed to completing the transaction at the price and terms agreed to with Mr. Musk.”
Scott Galloway, a marketing professor at New York University, explained in a podcast that Musk is now facing a billion-dollar lawsuit. This goes beyond the contractually agreed so-called “break fee” of one billion US dollars.
The fee was actually set as a penalty if one party pulls out of the agreed contract. However, it primarily applies in the event that financing falls through or regulators put a stop to the takeover. However, since Musk terminated the deal on his own and Twitter is considering it, Musk’s penalty could be significantly higher. Galloway explained:
He owes shareholders $17 billion (…). And Twitter’s stock is likely to crash. This guy could face a $20 billion judgment.
Twitter takeover: is Musk just trying to drive down the price?
Twitter is currently valued at around $28 billion. Musk’s takeover bid, meanwhile, was $54.20 per Twitter share and a total of around $44 billion. Should a lawsuit ensue, the Tesla CEO could be forced to pay the difference as compensation.
Numerous other experts see Twitter as having an advantage. A potential legal dispute could nevertheless be very lengthy and expensive. It is therefore more likely that a settlement or amicable agreement will be reached. Twitter could also agree to lower compensation or even a lower purchase price.
Both would again likely be in Elon Musk’s interest. After all, the assets of the richest man in the world shrank recently, as Tesla shares lost around 40 percent in value. Meanwhile, Twitter shares lost around 8 percent following Musk’s withdrawal announcement.