Elon Musk is formally trying to end his offer to buy Twitter. After hint heavy that he no longer wanted the company to tweet attacking Twitter for its bot calculations and a ominous story in The Washington Post this week reflecting his thinking, Musk’s legal team is: making steps to end its $44 billion deal to buy Twitter.
“Mr. Musk is terminating the merger agreement because Twitter is in material breach of multiple provisions of that agreement, appears to have made false and misleading statements that Mr. Musk relied on in entering into the merger agreement, and is likely to have a material adverse effect on the company will experience,” Musk’s lawyers wrote in a… letter to Twitter’s Chief Legal Officer Vijaya Gadde.
Musk points to his unsubstantiated claims that Twitter is misleading investors and users about the number of fake accounts on his platform, which the company has long estimated at less than 5%. Musk had no apparent qualms with Twitter’s number of bots before signing the deal, even saying he plans to tackle the platform’s spam problem as the company’s new owner.
It is widely believed that Musk wants out because markets took a dive shortly after the terms of the deal were agreed, also taking a good chunk of his Tesla billions over the cliff. Shares of the electric vehicle manufacturer halved between April and the end of May and have not recovered since. By mid-May, Twitter’s own share price had fallen below $40 a share — a significant discount from the $54.20 a share Musk agreed at the end of April†
Nevertheless, Musk’s argument is essentially that Twitter has misrepresented the number of daily active users to earn, thereby violating the terms of the deal:
Twitter is violating the Merger Agreement because the Merger Agreement appears to contain materially inaccurate statements. Notably, in the Merger Agreement, Twitter stated that no filings that Twitter has filed with the U.S. Securities and Exchange Commission since January 1, 2022 contain any “false statement of material fact” (Section 4.6(a)). Twitter has made repeated statements in such filings regarding the portion of its mDAUs that are false or spam, including statements that: “We conducted an internal review of a sample of accounts and estimate that the average of false or spam accounts over the first quarter of 2022 represented less than 5% of our mDAU during the quarter,” and “After determining that an account is spam, malicious automation, or fake, we stop counting it in our mDAU or other related metrics.” Mr. Musk relied on this statement in the Merger Agreement (and Twitter’s numerous public statements about false and spam accounts in its publicly filed SEC filings) when agreeing to enter into the Merger Agreement. Mr. Musk has the right to request rescission of the Merger Agreement if these material statements are determined to be false.
Musk’s legal team further alleges that Twitter has not given him sufficient access to his data to conduct his own analysis, although it is not clear how that analysis would differ from Twitter’s own long-standing methods. The letter also states that Twitter told Musk in an unreported phone call that the company is including suspended accounts in its daily active monetization user numbers and points to this as evidence of his allegations that the company’s counts are falling short of expectations. to be.
… Twitter’s disclosure that it no longer counts fake or spam users in its mDAU when it determines those users are fake appears to be false. Instead, based on Twitter’s statements during a June 30, 2022 conversation with us, we understand that Twitter includes accounts that have been suspended — and known to be fake or spam — in its quarterly mDAU count, even if it know that the suspended accounts were included in mDAU for that quarter.
Bret Taylor, the chairman of Twitter’s board of directors, responded to Musk’s letter Friday by doubling down on the company’s intentions to push through the deal. “The Twitter Board is committed to closing the transaction at the price and terms agreed with Mr. Musk and plans to take legal action to enforce the merger agreement,” Taylor wrote. Twitter CEO Parag Agrawal has retweeted Taylor’s tweet.
Agrawal has previously reversed Musk’s accusation that Twitter has fake accounts too low, describing the the company’s methodology, which generalizes platform-wide data based on a random sample of accounts. “We do not believe that this particular estimate can be performed 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 any given day.”
It’s far from clear that Musk’s baseless criticism of Twitter’s bot count will be seen as a valid reason to end the deal, especially given Twitter’s eagerness to get through this. For better or for worse, we’ll be hearing a lot more about that argument in the coming days as Musk and Twitter begin to flesh out the messy, months-long ordeal in court.
The story develops…