A messy legal fight is brewing after Elon Musk announced he was terminating his deal to buy the social media platform Twitter, citing an irreconcilable disagreement with the company over fake and spam accounts.
The world's richest man has previously accused Twitter of "resisting and thwarting" his attempts to access information about fake accounts, saying the deal could not progress until the issue was settled.
Musk claims up to 20 per cent of Twitter's 229 million users could be fake. The company itself insists the true figure is about 5 per cent.
"Musk is terminating the merger agreement because Twitter is in material breach of multiple provisions of that agreement, (and) appears to have made false and misleading representations, upon which Musk relied when entering into the merger agreement," the Tesla and SpaceX CEO's lawyers wrote in a letter to Twitter.
Twitter shares fell 6 per cent in extended trading on Friday, as weeks of speculation that the deal was in jeopardy continued to grow.
Responding to Musk's attempted withdrawal, Twitter Chairman Bret Taylor signalled the company would go to court in an effort to force him to go through with the deal.
"The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Musk and plans to pursue legal action to enforce the merger agreement," Taylor wrote in a social media post, retweeted by Twitter CEO Parag Agrawal.
"We are confident we will prevail in the Delaware Court of Chancery."
Meanwhile, an anonymous Twitter employee told NBC News Musk's decision felt like a victory, of sorts.
"I guess it feels like we won. But it feels like the end of the movie, where the characters are bloodied and bedraggled with a Michael Bay explosion behind them," the worker said.
"We could see this was coming, but in the meantime, he's f***ing destroyed the company."
The New York Times reports that an internal memo has been sent to Twitter's employees asking them to refrain from commenting publicly or privately.
"Given this is an ongoing legal matter, you should refrain from tweeting, Slacking, or sharing any commentary about the merger agreement," wrote the company's general counsel.
Musk's reason for withdrawing
In their letter, addressed to Twitter's Chief Legal Officer Vijaya Gadde and revealed by a filing with the US Securities and Exchange Commission, Musk's lawyers argued the company had breached its obligation to provide him with the information requested "for any reasonable business purpose related to the consummation of the transaction".
"Twitter has not complied with its contractual obligations. For nearly two months, Musk has sought the data and information necessary to 'make an independent assessment of the prevalence of fake or spam accounts on Twitter's platform'. This information is fundamental to Twitter's business and financial performance and is necessary to consummate the transaction," lawyer Mike Ringler wrote.
"Twitter has failed or refused to provide this information. Sometimes Twitter has ignored Musk's requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr Musk incomplete or unusable information."
He said Musk had made "numerous follow-up requests" aimed at "filling the gaps in the complete information Twitter provided".
Rumours circulated this week suggesting Elon Musk was trying to pull out of his agreement to purchase Twitter. Photo / Getty Images
"In short, Twitter has not provided information that 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.
"As Twitter has been on notice of its breach (of the merger agreement) since at least June 6, any cure period offered to Twitter under the agreement has now lapsed. Accordingly, Musk hereby exercises (his) right to terminate the agreement and abandon the transaction contemplated thereby."
Musk announced his plan to buy Twitter in April, proposing to acquire all its outstanding common stock for $US54.20 ($87.50) per share.
Earlier in the month, he'd purchased a 9.2 per cent stake in the social media company, making him the largest individual shareholder.
Twitter chief executive Parag Agrawal later revealed Musk had declined an offer to join the company's board – a move that would have prevented him from acquiring more than 14.9 per cent of the company's shares – sparking the first wave of takeover speculation.
"I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy," Musk said in a letter to Twitter's board regarding his purchase proposal.
"However, since making my investment I now realise the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company.
"As a result, I am offering to buy 100 per cent of Twitter for $US54.20 per share in cash, a 54 per cent premium over the day before I began investing in Twitter and a 38 per cent premium over the day before my investment was publicly announced.
"My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder. Twitter has extraordinary potential. I will unlock it."
Twitter's board agreed to the deal after Musk unveiled a funding package that included $21billion from his personal fortune But the billionaire announced it was on hold on May 13, citing a desire for more information about the spam accounts.
Agrawal posted a thread on social media at the time explaining the company's position on the matter. Musk responded with a poo emoji.
Elon Musk. Photo / Getty Images
Musk, who has become one of Twitter's most powerful users, with his posts regularly causing wild swings in stocks and cryptocurrency markets, has emerged as a vocal critic of the platform's business practices and in particular its content moderation policies.
Since taking a major stake, he has needled Twitter and its employees with a series of provocative posts, reportedly creating major anxiety within the company and prompting executives to grant staff a scheduled "day of rest".
In one, he created a poll asking whether Twitter's San Francisco headquarters should be converted into a "homeless shelter since no one shows up anyway".
More than 91 per cent of respondents, or 1.9 million people selected "yes".
He also approvingly shared a video of legendary activist investor Carl Icahn telling a story about how he "fired 12 floors of people" after taking over a company early in his career.
