Elon Musk, the chief executive officer of Tesla and the world's richest person, is terminating his NZ$71.1 billion deal to buy Twitter, while alleging that the social media company had breached multiple provisions of the merger agreement.
In response to Musk unilaterally aborting the deal, Twitter's chairman Bret Taylor tweeted hat the social network's board planned to pursue legal action to enforce the merger.
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.— Bret Taylor (@btaylor) July 8, 2022
In a filing, Musk's lawyers said 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.
"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 also said he was walking away because Twitter fired high-ranking executives and one-third of the talent acquisition team.
This breached Twitter's obligation to "preserve substantially intact the material components of its current business organisation."
Shares of Twitter were dropped 6 per cent to US$34.58 in extended trading, more than a third below the price they were trading at when Musk launched is acquistion plan in April this year.
The pull out announcement is another twist in a will-he-won't-he saga after Musk clinched the deal to purchase Twitter in April but then put the buyout on hold until the social media company proved that spam bots account for less than five per cent of total users.
A provision in the contract calls for Musk to pay Twitter a US$1 billion break-up if he cannot complete the deal for reasons such as the acquisition financing falling through, or regulators blocking the deal.
The break-up fee would not be applicable, however, if Musk terminates the deal on his own.
Musk's decision is likely to result in a long protracted legal tussle between the billionaire and the 16-year-old San Francisco-based company.
Analyst Daniel Ives at US investment firm Wedbush said Musk's filing was bad news for Twitter.
"This is a disaster scenario 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," he wrote in a note to clients.