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Elon Musk Pulls Out of $44B Deal to Buy Twitter

Elon Musk on Twitter
Elon Musk has backed out of his quest to own Twitter.
Sarah Tew/CNET

What's happening

Elon Musk sent a letter to Twitter saying he's ending an agreement to buy the influential social media company for $44 billion.

Why it matters

Twitter says it still plans to close the deal, so Musk's move is setting up a legal battle between the company and the billionaire. The company's ownership also impacts the future of Twitter, which has struggled to attract more users and ad dollars.

What's next

Twitter says it plans to pursue legal action to enforce the agreement.

Billionaire Elon Musk said Friday that he's pulling out of a $44 billion deal to buy Twitter, adding another twist to an ongoing saga in which the mercurial entrepreneur presented himself as the savior of free speech on the influential social network.

Musk, who also runs Tesla and SpaceX, said in a letter sent by his lawyer that Twitter breached multiple parts of the merger agreement by failing to provide more information about how it estimates the number of spam accounts on its platform. Twitter has reported that in the first quarter, fewer than 5% of Twitter's 229 million daily users were fake or spam-focused, but Musk says that number might not be accurate.

"This information is fundamental to Twitter's business and financial performance," reads the letter to Twitter from Musk lawyer Mike Ringler. The letter also said that Twitter "appears to have made false and misleading representations."

Bret Taylor, chairman of Twitter's board of directors, tweeted Friday that the company still intends to close 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," Taylor tweeted. "We are confident we will prevail in the Delaware Court of Chancery."

Ringler didn't immediately respond to a request for comment.

The letter also outlines other information Musk says Twitter hasn't handed over, including information about the company's financial conditions and more details about how Twitter calculates daily users who can see ads. The letter says that Twitter has provided Musk with some data, but it calls some of the information "minimally useful." Musk also alleges that an early analysis suggests some of Twitter's public disclosures of daily users are "either false or materially misleading." The letter further alleges Twitter breached another part of the agreement that said the company had to seek and obtain consent before straying from "its obligation to conduct its business in the ordinary course," after the social network fired key executives, laid off staff and froze hiring. 

The decision to terminate the deal caps a tumultuous period for Twitter, which found itself in the crosshairs after Musk revealed a roughly 9% stake in the company in early April. Musk appeared on the verge of joining Twitter's board of directors but pulled out before proposing to buy the entire company and take it private. The board tepidly accepted Musk's offer after he cobbled together highly leveraged financing for the deal.

Musk, the world's richest person, said he wanted to acquire Twitter because he believes the company no longer adheres to the principles of free speech, a term he's used both loosely and often. On April 26, he tweeted, "By 'free speech', I simply mean that which matches the law." 

Under the US Constitution's First Amendment, free speech refers to protection from government interference. It doesn't apply to companies such as Twitter

Dan Ives, an analyst with Wedbush Securities, tweeted Friday that Musk's move is a "disaster scenario for Twitter and its Board as now the company will battle Musk in an elongated court battle to recoup the deal and/or the breakup fee of $1 billion at a minimum."

Carolina Milanesi, a principal analyst at market intelligence and strategy consulting firm Creative Strategies, said forcing Musk to buy Twitter could be a mistake for the social network.

"What company wants to be owned by someone who does not want it?" Milanesi said. "I personally never believed Musk had a concrete and viable plan to reinvigorate Twitter and its revenue."

Twitter has struggled to compete for ad dollars and users with larger social networks such as Facebook and TikTok. The company's calculation of daily users who can see ads hasn't always been accurate, either. In April, Twitter revealed it inflated its daily active user numbers since 2019 because of an error involving how it calculated linked accounts.  

The deal's potential collapse could also prompt the Securities and Exchange Commission to further scrutinize Musk, who fell afoul of regulators for tweeting about a plan to take Tesla private. Musk's disclosure of his stake in Twitter was filed late and on the wrong form. 

Musk has railed against the SEC, which alleged that Musk and Tesla had made "false and misleading" statements when he tweeted on Aug. 7, 2018, that he had "funding secured" to take the electric-car company private. 

The SEC struck a deal with Musk and Tesla that required fines of $20 million each. It also required Musk's tweets to be vetted by a lawyer if they contained material information regarding the company. In April, a federal judge denied Musk's request to have the oversight lifted.

Investors never wholly believed Musk would buy Twitter. Though the company's shares jumped after Musk unveiled his stake, they didn't reach the $54.20 price he pledged to pay. (The price includes the number 420, slang for marijuana and a running Musk gag. His proposal to take Tesla private included a suggestion a deal could be done at $420 a share.) 

Twitter shares immediately fell nearly 7% in after hours trading to $34.25 per share on news that Musk wanted to end the deal. Twitter's general counsel, meanwhile, asked employees not to tweet, Slack or otherwise discuss the deal now that the company's board of directors has threatened legal action against Musk.

"I know this is an uncertain time, and we appreciate your patience and ongoing commitment to the important work we have underway," he wrote in an internal memo Friday. A Twitter spokeswoman declined to comment further.

CNET's Ian Sherr contributed to this report.