Elon Musk has no intention of paying the massive $1 billion breakup fee for backing out of the deal to buy Twitter

Elon Musk does not plan to pay the $1 billion breakup fee outlined in the agreement he signed to acquire Twitter.

Musk on Friday sent a 3,000 word letter to Twitter’s board saying he’s decided to “terminate” the $44 billion deal, making no mention of the breakup fee. That’s because Musk doesn’t believe it’s owed, a person familiar with the matter told Insider.

Under the terms of the deal signed in April and which Twitter recommended its stockholders approve last month, both sides would be responsible for paying a breakup fee if it were to go awry for a number of reasons. All of which are likely to become points of contention in an impending and presumably lengthy legal battle.

Twitter responded to Musk’s letter with a short statement saying it intends to “pursue legal action” in order to enforce the deal. Any lawsuit will be heard in Delaware’s Chancery Court, which frequently deals with major business disputes.

The reasons outlined in the merger agreement for Musk to pay the breakup fee to Twitter include his failure to “consummate the merger as required pursuant to, and in the circumstances specified in, the merger agreement” or in the event that he “breaches representations, warranties or covenants in a manner that would cause the related closing conditions not to be satisfied.” Twitter would likely argue in a lawsuit that Musk indeed failed to close the deal as required. 

A Twitter spokesperson reiterated its statement in response to Musk’s attempt to back out of the deal, saying “we are confident we will prevail in the Delaware Court of Chancery.” A representative for Musk did not respond to a request for comment.

The breakup fee would be due within two days of the deal’s termination, but that is extended to after the resolution of a lawsuit, should one be filed, according to the agreement. 

Musk’s letter backing out of the deal offered a number of alleged reasons why he has the right to fully toss out the agreement.

He claims Twitter failed to provide him with all of the information he requested on users and the number of “bots,” or spam accounts on the platform. Musk also claims that Twitter did not provide a full accounting of its business and that it “appears to” have made “materially inaccurate representations” to the SEC about its user metrics.

In addition, Musk is claiming that Twitter’s recent actions around hiring, including a hiring freeze and layoffs was done without his “consent.” All of these constitute individual breaches of the merger agreement, Musk argues, with their ability to cause a “material adverse effect” to the business. 

The Delaware court has created a very high bar for what constitutes a “material adverse effect” that would allow a buyer to exit a deal, Brian Quinn, associate professor at the Boston College Law School, told Insider. He added that such a claim is “very hard” to win.

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