Elon Musk tells Twitter he is killing the deal

Musk points to his unsubstantiated claims that Twitter is misleading investors and users about the number of fake accounts on its platform, which the company has long estimated to be under 5%. Musk had no apparent qualms with Twitter’s bot count prior to inking the deal and actually mentioned that he planned to take on the platform’s spam problem as the company’s new owner.

Nonetheless, Musk’s argument is essentially that Twitter misrepresented its monetizable daily active user counts and in doing so broke the terms of the deal:

Twitter is in breach of the Merger Agreement because the Merger Agreement appears to contain materially inaccurate representations. Specifically, in the Merger Agreement, Twitter represented that no documents that Twitter filed with the U.S. Securities and Exchange Commission since January 1, 2022, included any “untrue statement of a material fact” (Section 4.6(a)). Twitter has repeatedly made statements in such filings regarding the portion of its mDAUs that are false or spam, including statements that: “We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the first quarter of 2022 represented fewer than 5% of our mDAU during the quarter,” and “After we determine 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 in the Merger Agreement (and Twitter’s numerous public statements regarding false and spam accounts in its publicly filed SEC documents) when agreeing to enter into the Merger Agreement. Mr. Musk has the right to seek rescission of the Merger Agreement in the event these material representations are determined to be false.

Musk’s legal team goes on to claim that Twitter hasn’t given him sufficient access to its data to conduct his own analysis, though it’s not clear how that analysis would differ from Twitter’s own longstanding methods. The letter also states that Twitter told Musk in an unreported phone call that the company includes suspended accounts in its monetizable daily active user numbers and points to this as proof of his accusations that the company’s counts aren’t above board. 

… Twitter’s disclosure that it ceases to count fake or spam users in its mDAU when it determines that those users are fake appears to be false. Instead, we understand, based on Twitter’s representations during a June 30, 2022 call with us, that Twitter includes accounts that have been suspended — and thus are known to be fake or spam — in its quarterly mDAU count even when it is aware 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 see the deal through. “The Twitter 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 Parag Agrawal retweeted Taylor’s tweet.

The Twitter 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. We are confident we will prevail in the Delaware Court of Chancery.

It’s far from apparent that Musk’s unsubstantiated criticism of Twitter’s bot counts will be deemed a valid enough reason to terminate the deal, particularly given that Twitter is keen to see it through. For better or worse, we’re going to hear a lot more about that argument in the coming days as Musk and Twitter begin to hash out the messy, months-long ordeal in court.

 

The story is developing…

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