Elon Musk Seeks to Abandon $44 Billion Twitter Deal

The submitting caps practically two months of high-stakes suspense over Mr. Musk’s intentions, whereas establishing a attainable authorized battle over what comes subsequent for the social-media platform.

Bret Taylor, chairman of Twitter’s board of administrators, tweeted Friday afternoon that the board plans to pursue authorized motion to implement the deal on the worth and phrases initially agreed upon.

“We’re assured we are going to prevail within the Delaware Courtroom of Chancery,” Mr. Taylor tweeted. Parag Agrawal, Twitter’s chief government, retweeted the message.

The corporate has stated repeatedly in current weeks that it was sharing info with Mr. Musk to consummate the deal as specified by the merger settlement—and that it meant to shut the transaction and implement the settlement on the agreed worth and phrases.

There are not any ensures Mr. Musk will be capable to stroll away from the deal totally, as Twitter is predicted to problem his authorized arguments.

Mr. Musk’s lawyer cited issues over Twitter’s estimates about what number of of its every day customers are faux or spam accounts as a problem Mr. Musk raised as a priority in regards to the deal nearly three weeks after he signed it.

Twitter shares fell about 6% in after-hours buying and selling Friday following the disclosure.

Mr. Musk’s resolution to attempt to abandon a deal that he initiated—citing a problem he knew about earlier than agreeing to the transaction—reinforces the billionaire’s popularity for unpredictability. It additionally leaves main questions on the way forward for Twitter, which Mr. Musk had pledged to rejuvenate, as the corporate and different social-media platforms take care of slowing development in digital promoting and broader financial uncertainty.

At a minimal, Mr. Musk may very well be on the hook for a $1 billion breakup charge, primarily based on the phrases of his April 25 acquisition settlement with Twitter. However the deal offers him solely restricted leeway to stroll away and pay solely that quantity—and it isn’t clear that his complaints about Twitter’s account information qualify. The settlement offers Twitter the appropriate to attempt to power him to observe by way of on the acquisition if he seeks to cancel it for different causes.

The deal’s destiny has been in query since Could 13, when Mr. Musk introduced on Twitter that he was quickly placing it “on maintain” pending extra details about the account points. Twitter has lengthy stated spam accounts symbolize lower than 5% of its monetizable every day energetic customers, the first consumer quantity it discloses. Mr. Musk has prompt the determine may very well be nearer to 20%, however hasn’t made clear how he arrived at that calculation.

The Could tweet kicked off weeks of forwards and backwards as Mr. Musk repeatedly questioned and poked enjoyable at Twitter—typically by itself platform—and demanded the corporate furnish him extra information to test its math. Twitter constantly stated it was complying along with his requests, and ultimately supplied entry to its so-called hearth hose of tweets.

Simply Thursday, Twitter defended its accounting, saying it usually removes a couple of million spam accounts every day whereas they’re being arrange or quickly after. It additionally stated it depends on carefully held personal consumer info to determine spam accounts in a course of outsiders with out entry to that information wouldn’t be capable to replicate.

Whereas the fake-account sparring performed out, tech shares have been persevering with to fall. The tech-heavy Nasdaq Composite Index has slid 15% since Mr. Musk unveiled his all-cash supply to purchase Twitter at $54.20 a share on April 14. Twitter shares had fallen practically 20% by way of Friday’s shut, after they have been at $36.81 every.

As he lined up financing for the deal, Mr. Musk bought among the shares in Tesla Inc., TSLA 2.54% the electric-vehicle maker he runs. Tesla shares have slumped about 30% since Mr. Musk’s curiosity in Twitter first grew to become public.

Outdoors specialists say faux and spam accounts are a problem for Twitter, in addition to different social-media platforms, and the corporate’s calculations about its customers are primarily based partly on a few of their personal info it received’t share, even with Mr. Musk.

Nonetheless, his resolution to threaten the deal over the fake-and-spam accounts problem raised eyebrows from the beginning. One among Twitter’s most energetic and well-known customers, with now greater than 100 million followers, he had complained about such issues for years, but had agreed throughout deal negotiations to waive due diligence of Twitter’s enterprise.

Twitter now faces the prospect of a tough authorized battle to power Mr. Musk to finish the acquisition or present what it sees as truthful compensation below a authorized safety referred to as “particular efficiency.” There are methods for Mr. Musk to battle such an end result. He might, as an illustration, show that one thing materially modified in Twitter’s enterprise since he agreed to purchase the corporate, or that he did not safe the required debt financing.

Even when contract phrases are clearly spelled out, most of the time, deal clashes finish in negotiated settlements which might embrace a worth minimize or one-time funds.

In 2020, luxury-goods conglomerate LVMH Moët Hennessy Louis Vuitton SE tried to again out of a deal to purchase Tiffany & Co. for $16.2 billion after the pandemic harm demand for high-end jewellery. Tiffany sued to implement the settlement and LVMH countersued, arguing the enterprise had been so deeply broken that their authentic settlement was not legitimate. The 2 sides later agreed to chop the worth by a comparatively modest $430 million and settle associated litigation.

Twitter’s advisers have prompt that its contract had extra seller-friendly protections than Tiffany’s, and that the corporate has authorized avenues to make sure Mr. Musk follows by way of with the deal, folks aware of the matter stated. Its board is concentrated on getting the perfect end result for shareholders, which it has to this point decided is the $44 billion sale quite than a $1 billion breakup charge, the folks stated.

If the deal does collapse, Twitter might be left having to persuade shareholders about its personal plans to develop in an turbulent financial system after being jilted by a devotee of the platform who, by way of all the things else, had persistently talked up its potential. Mr. Musk laid out a number of adjustments he deliberate for Twitter, together with reducing again on content material moderation and making the platform much less reliant on promoting income that accounts for about 90% of its gross sales.

Mr. Agrawal, Twitter’s CEO, has continued managing the enterprise amid scrutiny and public criticism from Mr. Musk and in opposition to a darkening macroeconomic backdrop. Now the corporate should regroup after a drawn-out course of that has saved staff and traders in limbo.

In April, Twitter stated it was withdrawing formidable income and consumer targets. In Could, the corporate stated it was pausing hiring and seeking to minimize prices because it grappled with disruptions within the digital promoting market and amid the conflict in Ukraine. The identical day, the corporate introduced the departure of two senior executives. On Thursday, the corporate laid off a 3rd of its recruiting crew.

Within the submitting Friday, Mr. Musk’s lawyer stated that Twitter had made materials adjustments to the enterprise with out his consent in shedding some workers, implementing a hiring freeze and taking actions.

Mr. Musk’s previous deal making has, at instances, landed him in authorized turmoil. In 2018 he prompt on Twitter he had “funding secured” to take Tesla personal. The SEC fined Mr. Musk for what it deemed a false assertion. Mr. Musk additionally relinquished his function as Tesla chairman as a part of the settlement. Mr. Musk is suing to have the settlement thrown out.

Additionally probably shedding out within the deal are monetary establishments seeking to make it occur. Twitter’s bankers would stand to make tens of thousands and thousands in advisory charges on closing, in keeping with a earlier regulatory disclosure. Goldman Sachs Group Inc. would stand to make round $80 million, together with $15 million upfront, whereas JPMorgan Chase & Co. might make $53 million, together with $5 million upfront.

Write to Meghan Bobrowsky at Meghan.Bobrowsky@wsj.com and Cara Lombardo at cara.lombardo@wsj.com