Elon Musk is formally trying to end his offer to buy Twitter. After hinting that he no longer wanted the company to want to attack Twitter for his bot calculations and a disastrous story in The Washington Post this week that reflects his thinking, Musk’s legal team is taking steps to terminate the its $ 44 billion deal to buy Twitter.
“Mr. Musk is terminating the Merger Agreement because Twitter is substantially violating several provisions of this Agreement, it appears to have made false and misleading statements on which Mr. Musk when he signed the Merger Agreement and is likely to suffer a material adverse effect from the company. Musk’s lawyers wrote in a letter to Twitter’s legal director, Vijaya Gadde.
Musk points out his unfounded claims that Twitter is misleading investors and users about the number of fake accounts on its platform, which the company has long estimated is less than 5%. Musk had no apparent hesitation with Twitter’s bot count before signing the deal and mentioned that he planned to take on the platform’s spam problem as the company’s new owner.
It is widely assumed that Musk wants to leave because markets fell shortly after the terms of the deal were agreed, also grabbing a solid chunk of his billions of Tesla off the cliff. Shares of the electric vehicle manufacturer were halved between April and the end of May and have not recovered since. By mid-May, the price of Twitter shares had fallen to less than $ 40 per share, a sizeable discount from the $ 54.20 per share Musk agreed to in late April.
However, Musk’s argument is essentially that Twitter distorted its daily count of monetizable active users and, in doing so, broke the terms of the agreement:
Twitter is in breach of the Merger Agreement because it appears that the Merger Agreement contains materially inaccurate representations. Specifically, in the Merger Agreement, Twitter stated that no document that Twitter submitted to the U.S. Securities and Exchange Commission since January 1, 2022 included any “false statement of a material fact” (Section 4.6 (a)). Twitter has repeatedly made statements in these submissions about the portion of its mDAUs that are fake or spam, including statements that: “We’ve conducted an internal review of a sample of accounts and estimate that the average fake or spam accounts during the first quarter of 2022 accounted for less than 5% of our mDAU during the quarter ”and“ After determining that an account is spam, malicious or fake automation, we stop counting it on our mDAU or other related metrics ”. Mr. Musk relied on this representation in the Merger Agreement (and on Twitter’s numerous public statements about fake and spam accounts in his publicly filed SEC documents) when he agreed to sign the Merger Agreement. Mr. Musk has the right to request the termination of the Merger Agreement in the event that such material statements are determined to be false.
Musk’s legal team claims that Twitter has not given him enough access to his data to conduct his own analysis, although it is unclear how that analysis would differ from long-standing Twitter methods. The letter also says Twitter told Musk in an uninformed phone call that the company includes accounts suspended in its monetizable daily active user numbers and notes this as evidence of its allegations that the company counts no they are superior.
… Twitter disclosure that stops counting fake or spam users on your mDAU when it determines that those users are fake appears to be fake. Instead, we understand, based on Twitter representations during a call with us on June 30, 2022, that Twitter includes accounts that have been suspended — and therefore known to be fake or spam — in its quarterly mDAU count even when you are aware that suspended accounts were included in mDAU for this quarter.
Bret Taylor, chairman of Twitter’s board of directors, responded Friday to Musk’s letter duplicating the company’s intentions to carry out the deal. “The Twitter Board agrees to close the transaction on the price and terms agreed with Mr. Musk and plans to initiate legal action to enforce the merger agreement,” Taylor wrote. Twitter CEO Parag Agrawal retweeted Taylor’s tweet.
The Twitter Board agrees to close the transaction according to the price and terms agreed with Mr. Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Chancellery Court.
– Bret Taylor (@btaylor) July 8, 2022
Agrawal has previously dismissed Musk’s accusation that Twitter is underestimating fake accounts, describing the company’s methodology, which generalizes data for the entire platform based on random sampling of accounts. “We do not believe that this specific estimate can be made externally, given the critical need to use both public and private information (which we cannot share),” Agrawal tweeted in May. “Externally, it’s not even possible to know which accounts are counted as mDAUs on a given day.”
It’s not clear that Musk’s unfounded criticisms of Twitter’s bot count are considered a valid enough reason to terminate the deal, especially given that Twitter is eager to overcome it. For better or worse, we’ll hear a lot more about this argument in the coming days as Musk and Twitter begin to resolve the messy ordeal of months in court.
The story unfolds …