Update: 

Twitter has immediately lobbed a response to Musk's latest letter in which the social network company claims that Musk's letter is invalid, that Twitter hasn't breached any obligations, and that Musk continues to knowingly breach the merger agreement.

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Full response below (link):

This letter is sent on behalf of Twitter, Inc. (“Twitter” or “the Company”) in response to your August 29, 2022 letter, in which X Holdings I, Inc. purports to again terminate the Agreement and Plan of Merger (the “Agreement”) by and among Twitter, X Holdings I, Inc. (“Parent”), X Holdings II, Inc. (“Acquisition Sub”), and Elon R. Musk (together with Parent and Acquisition Sub, the “Musk Parties”) by delivering an “additional notice of termination” of the Agreement seeking additional bases upon which to purportedly terminate the Agreement. Capitalized terms used here and not otherwise defined have the meanings ascribed to them in the Agreement.

As was the case with your July 8, 2022 purported notice of termination, the purported termination set forth in your August 29, 2022 letter is invalid and wrongful under the Agreement, including under Section 8.1(d) thereof. It is based solely on statements made by a third party that, as Twitter has previously stated, are riddled with inconsistencies and inaccuracies and lack important context. Contrary to the assertions in your letter, Twitter has breached none of its representations or obligations under the Agreement, and Twitter has not suffered and is not likely to suffer a Company Material Adverse Effect. Twitter intends to enforce the Agreement and close the transaction on the price and terms agreed upon with the Musk Parties.

Additionally, the purported additional termination is invalid for the independent reason that Mr. Musk and the other Musk Parties continue to knowingly, intentionally, willfully, and materially breach the Agreement, including but not limited to Sections 6.1, 6.3, 6.4, 6.8, and 6.10 thereof, and repudiated their obligations under the Agreement when they delivered their July 8 invalid and wrongful purported termination notice. The Agreement is not terminated, the Bank Debt Commitment Letter and the Equity Commitment Letter remain in effect, and Twitter again demands that Mr. Musk and the other Musk Parties comply with their obligations under the Agreement, including their obligations to use their respective reasonable best efforts to consummate and make` effective the transactions contemplated by the Agreement, the Bank Debt Commitment Letter, and the Equity Commitment Letter. Twitter will continue to pursue its right to specifically enforce all of the Musk Parties’ obligations under the Agreement.

Twitter reserves all contractual, legal, and other rights.

Earlier:

Twitter shares slumped to $38 before erasing almost all losses, after Elon Musk's increasingly desperate lawyers sent a termination letter to the social media company, citing the recent accusations from a Twitter whistle-blower as a new reason to end the $44 billion takeover of the social media platform.

In a filing early Tuesday, Musk's law firm said the allegations by Zatko, including “egregious deficiencies” in the platform’s defenses against hackers and privacy issues, meant that Twitter had breached the conditions in the merger agreement.

Peiter Zatko, Twitter’s ex-head of security, claimed he raised questions about severe shortcomings in the social media company’s handling of users’ personal data, including running out-of-date software and that executives had withheld information about breaches and lack of protections for user data. Lawyers for both Musk and Twitter have subpoenaed Zatko, who said the social-media platform’s officials didn’t know or care to find out how many accounts were spam or robot accounts.

Musk has been scrambling for months to try and extract himself from the takeover of Twitter, initially leading with the claim that Twitter’s user figures are inflated by millions of robot accounts. The billionaire’s legal team has recently switched its attention to Zatko, who was fired from Twitter earlier this year.

Twitter shares fell as much as 5% in premarket trading on Tuesday before New York exchanges opened, to $38.00, far below Musk’s offer price of $54.20, before recovering most losses as traders realized that Musk's latest gambit has little chance of overturning the deal.

Twitter, which has maintained that spam and bots make up fewer than 5% of accounts, sued Musk in July to force him to complete his proposed acquisition. Since then, more than 100 people, banks, funds and other firms have been subpoenaed in the Delaware suit, with a trial scheduled to begin Oct. 17.

As Bloomberg notes, the new findings add to Musk’s prior claims, showing that Twitter is in “material noncompliance” with obligations around data privacy and consumer protection laws and that the company is vulnerable to data center failures and malicious actors.

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