In a filing with the US Securities and Exchange Commission (SEC), Musk said that he wanted to terminate the deal because Twitter was in “material breach” of their agreement and had made “false and misleading” statements during negotiations.

The social media company, meanwhile, has said it plans to pursue legal action to enforce the agreement.

Musk’s action to bail out of the deal marks the latest twist in a long-running saga after he decided to buy Twitter in April.

Why Musk is backing out of the deal

Musk has claimed that Twitter has not provided him with necessary information on the prevalence of fake or spam accounts on its platform, a concern he had first raised in May. At the time, he had said that the deal was “temporarily on hold”, until he received the data from Twitter, which had asserted that spam and bot accounts make up less than 5 per cent of its total users.

In his filing with the US SEC, Musk’s legal team said that “for nearly two months, Mr. 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…Twitter has failed or refused to provide this information. Sometimes Twitter has ignored Mr. 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”.

Musk also said he was pulling out because Twitter fired senior executives and a third of its talent acquisition team, breaching Twitter’s obligation to “preserve substantially intact the material components of its current business organisation.”

While these are broadly the two main reasons that Musk has intimated the SEC for terminating the deal, a number of external factors could have also played a role in his decision. Firstly, tech stocks globally have seen a massive correction since the deal was announced. On Friday, Twitter’s stock on the New York Stock Exchange closed at a value of $36.81, compared to $51.70 on April 25 when the company had accepted Musk’s offer, a decline of nearly 29 per cent. Tesla’s stock price has fallen by more than 24 per cent since the deal was announced.

Secondly, there were also question marks around how Musk would finance the $44 billion deal. In May, Musk had told the US SEC that the deal would include $33.5 billion in equity, up from an earlier commitment of $27.25 billion. He had also sold Tesla stock worth around $8.5 billion and had lined up about $7 billion from investors including Prince al-Waleed bin Talal of Saudi Arabia. However, he had told the SEC that he was continuing to seek additional financing and was in talks with Twitter shareholders, including former Twitter CEO Jack Dorsey, about potentially retaining their stakes in the company. It is unclear if Musk has managed to raise enough money to finance the deal.

What happens next?

Musk and Twitter could be looking at a lengthy legal battle, as the social media platform has made it clear that it will pursue legal action to enforce the terms of the deal.

“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,” said Twitter’s chairman Bret Taylor. The original merger agreement also includes a $1 billion break-up fee.

According to Reuters, disputed mergers and acquisitions that land in Delaware courts more often than not end up with the parties re-negotiating deals or the acquirer paying the target a settlement to walk away, rather than a judge ordering that a transaction be completed.

The many twists and turns in the Musk-Twitter deal

Musk started buying Twitter’s shares in January 2022, and his shareholding in the company subsequently rose to over 5 per cent in March and 9.2 per cent in April, making him the largest individual stakeholder in the company.

On April 4, Twitter’s CEO Parag Agrawal announced that Musk would be joining Twitter’s board, however, just four days later, on April 9, Musk told the social media company that he would not take a board seat, and instead make an offer to take the company private.

On April 14, Musk made his offer to buy Twitter for $44 billion, leading to Twitter’s board adopting a ‘poison pill’ strategy to thwart any attempts of a hostile takeover of the company. After Musk made details of his financial plan known, mentioning that he has secured commitment to raise $46.5 billion, the company on April 25 accepted his original $44 billion offer to buy Twitter and take it private.

In the subsequent weeks, Musk sold Tesla shares worth around $8.5 billion and raised $7.1 billion to finance the deal from the likes of Prince al-Waleed bin Talal, Sequoia, Binance, a16z and others.

Soon after that, Agrawal announced that two top Twitter executives, Kayvon Beykpour and Bruce Falck, will leave the company. He also announced a hiring freeze and other cost-cutting measures.

On May 14, Musk said that the Twitter deal was “temporarily on hold” flagging fake and spam accounts on the platform as a concern.

Despite Agrawal’s explanation that less than 5 per cent of its users are spam or fake accounts, Musk said that the deal “cannot move forward” without proof on fake accounts.