Why did Elon Musk not buy Twitter? Social media platform set to sue Tesla CEO over termination of $44 billion deal

In late March and early April, Tesla and SpaceX CEO Elon Musk acquired a 9.2 percent stake in Twitter Inc., making him the firm's largest shareholder. Just days later, the wealthiest person on Earth (as of publishing) announced his offer to buy Twitter for $44 billion.

The company had also agreed to accept an offer by Musk to purchase the social media firm and make it private. However, in the last three months, Musk has expressed concerns over the deal and alleged that portions of Twitter's user base are composed of fake accounts.

On Friday, July 8, a letter to the US Securities and Exchange Commission (SEC) revealed that the 51-year-old South African native has decided to back out of the deal. The official filing also claimed that Elon Musk had been asking for user data regarding fake Twitter accounts since early May.

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What are the reasons for which Elon Musk canceled his deal to purchase Twitter Inc.?

According to the SEC filing, Elon Musk is backing out of the $44 billion deal to purchase Twitter Inc. over the firm's alleged misrepresentation of "false and spam accounts." The document elaborated:

"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.' This information is fundamental to Twitter's business and financial performance and is necessary to consummate the transactions contemplated by the Merger Agreement because it is needed to ensure Twitter's satisfaction of the conditions to closing, to facilitate Mr. Musk's financing and financial planning for the transaction, and to engage in transition planning for the business."

It further claimed:

"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."

The document cited that Twitter had allegedly breached Section 6.4 of the Merger Agreement as the firm had reportedly failed to entertain Elon Musk's request to access the mDAU (monetizable daily active user) data. According to Twitter Inc's report in April 2022, following Musk's offer, the firm has around 229 million average monetizable daily active users globally.

However, Elon Musk alleged that Twitter's claim of having only around five percent of their global user count representing fake accounts was inaccurate. On May 17, Musk responded to a tweet and called out Twitter CEO Parag Agarwal over the representation of user data. He mentioned:

"Yesterday, Twitter's CEO publicly refused to show proof of <5%. This deal cannot move forward until he does."

Meanwhile, on Thursday, July 7, Twitter executives backed the firm's claim that spam accounts represented less than five percent of the total user count. According to Reuters, Twitter's five percent claim has reportedly remained unchanged since 2013. In the briefing's conference call, the press was informed that the social media firm removed over one million spam accounts daily. The accounts represent fake ones and those operated by bots.

At the same time, Twitter's Chairman of the Board, Bret Taylor, disclosed that the firm would take legal action to ensure the completion of Musk's deal. In a tweet on Friday, Taylor mentioned:

"(The Twitter Board) plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery."

Elon Musk, who has been exceptionally vocal about such controversies on Twitter, is yet to address the aforementioned statement or the deal's cancelation.