Elon Musk is trying to formalize his bid to buy Twitter. After Note greatly That he no longer wants the company in its bot calculations and tweets attacking a Twitter A terrible story in The Washington Post Reflecting on his thinking this week, Musk’s legal team takes action To break his $44 billion deal to buy Twitter.
“Mr. Musk is terminating the Merger Agreement because Mr. Twitter breached several terms of that Agreement and made false and misleading representations that Mr. Musk relied on when entering into the Merger Agreement,” Musk’s lawyers wrote. Letter To Vijaya Gade, Twitter’s Chief Legal Officer.
Musk points to his unsubstantiated claims that Twitter misled investors and users about the number of fake accounts on its site, which the company has long estimated at less than 5%. Musk had no concerns about Twitter’s bot count before signing the deal, and indicated that he plans to take on the platform’s spam problem as the company’s new owner.
With markets plunging shortly after the terms of the deal were agreed, it’s widely believed that Musk wants out, taking a solid chunk of his Tesla billions off the cliff. Shares of the electric vehicle maker halved from April to the end of May and haven’t recovered since. Twitter’s own stock price fell below $40 a share in mid-May — a significant discount from $54.20 a share. Musk agreed in late April.
Nevertheless, Musk’s argument essentially states that Twitter misrepresented its monetizable daily active user count and violated the terms of the contract by doing so:
Twitter is in breach of the Affiliate Agreement because the Affiliate Agreement contains material misrepresentations. Specifically, in the Merger Agreement, Twitter states that there is no “untrue statement of a fact” (Section 4.6(a)) in any of Twitter’s filings with the US Securities and Exchange Commission beginning January 1, 2022. Twitter has made repeated statements about the invalid or spam portion of its mDAUs: “We conducted an internal review of a sample of accounts and estimated the average number of invalid or spam accounts in the first quarter. accounted for less than 5% of our mDAU in the quarter of 2022,” and “After we determine 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 representation when he agreed to enter into the merger agreement (and several other public statements regarding false and spam accounts in Twitter’s publicly filed SEC filings). If these material representations are determined to be false, Mr. Musk has it right.
Musk’s legal team says Twitter didn’t give him enough access to its data to conduct his own analysis, though it’s unclear how that analysis would differ from Twitter’s own long-standing methods. The letter also claims that Twitter told Musk in an unreported phone call that its monetizable daily active user numbers include suspended accounts, and points to it as evidence for his allegations that the company’s numbers are not above board.
… that Twitter stops counting fake or spam users in its mDAU when it determines that those users are fake seems wrong. Instead, based on Twitter’s representations during the call with us on June 30, 2022, Twitter included suspended accounts — thus known as fake or spam — in its quarterly mDAU count and suspended accounts were added to the mDAU for that quarter.
Brett Taylor, the chairman of Twitter’s board of directors, responded to Musk’s letter on Friday and doubled down on the company’s intentions to get the deal done. “Twitter’s 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 wrote. Twitter CEO Barak Agarwal retweeted Taylor’s tweet.
Agarwal previously pushed back against Musk’s allegations that Twitter was cracking down on fake accounts. Methodology of the company, which generalizes the data to the entire site based on a random sample of accounts. “Given the critical need to use public and private information (which we cannot share), we do not believe this particular assessment can be done externally,” Agarwal said. tweeted in May. “Outwardly, it’s impossible to know which accounts count as mDAUs on which day.”
It’s not obvious that Musk’s unsubstantiated criticism of Twitter’s bot count would be considered a valid enough reason to terminate the deal, especially since Twitter is eager to see it. For better or worse, we’re going to hear a lot more about that argument in the coming days as Musk and Twitter begin a messy, months-long trial in court.
The story develops…