Musk moved to back out of the deal Friday, claiming the San Francisco-based social media giant refused to turn over key data on the number of fake accounts that make up its active daily user totals. Musk said he relied on the company’s claims when making his bid, but then was denied the ability to verify them.
“Material Adverse Effect,” was cited by the Tesla chief’s attorneys in a Securities and Exchange Commission filing Friday.
Invoking the phrase means Musk believes Twitter did not act in good faith during the due diligence period, and their actions negatively affected his ability to fairly gauge his own position. Whether Twitter’s alleged deception occurred or was enough to warrant ending the deal will be decided in court.
Elon Musk Terminates Twitter Purchase Deal, Citing Material Breach of Agreement by Company Refusing to Provide Access to Datahttps://t.co/LRsm6Qr7JH
— TheLastRefuge (@TheLastRefuge2) July 8, 2022
Musk will have to prove Twitter’s omissions amounted to an “unexpected, fundamental, permanent” negative development, Larry Hamermesh, a University of Pennsylvania law professor, told Bloomberg.
Judges have been hesitant to find acquisition targets’ meet the threshold for material adverse effect.