It seemed inevitable, and now, Elon Musk has officially filed a motion with the SEC to cancel his $44 billion acquisition of Twitter, due to Twitter failing to provide accurate information about the number of fake accounts on its platform.
In a letter filed on behalf of Musk and his investment partners at Morgan Stanley, Musk seeks to cancel the acquisition due to a ‘material breach of multiple provisions of the original merger agreement.
According to the presentation:
‘[Twitter] appears to have made false and misleading representations relied upon by Mr. Musk in entering into the Merger Agreement, and is likely to suffer a Material Adverse Effect to the Company (as that term is defined in the Merger Agreement).”
Musk’s team says that despite repeated requests for qualified information, Twitter failed to provide them with the data necessary to make an accurate and true assessment of the number of fake accounts on its platform.
“Although Section 6.4 of the Merger Agreement requires Twitter to provide Mr. Musk and his advisers with all data and information that Mr. Musk requests “for any reasonable business purpose related to the consummation of the transaction,” Twitter does not has fulfilled its contractual obligations. .”
Musk’s team says it has been seeking more information from Twitter for nearly two months, and Twitter is only providing limited access to the required data, in violation of its terms.
“Twitter has sometimes ignored Mr. Musk’s requests, sometimes rejected them for reasons that appear unwarranted, and sometimes claimed to comply while providing Mr. Musk with incomplete or unusable information.”
In all, Musk’s team says that Twitter has provided them with no information about:
- Information related to Twitter’s process to audit the inclusion of spam and fake accounts in mDAU
- Information related to Twitter’s process for identifying and suspending spam and fake accounts
- Daily mDAU measurements for the last eight (8) quarters
- Board Materials Related to Twitter’s mDAU Calculations
- Materials related to the financial condition of Twitter
Because Twitter failed to comply with these requests within a reasonable period of time, that, Musk’s team says, is a violation of the terms of the deal and therefore grounds for canceling the deal.
The letter also notes that Musk’s team is still unconvinced by Twitter’s metrics, with its own analysis of Twitter’s expanded usage data, which it provided last month, showing that fake accounts are more prevalent on the app. from what Twitter says:
“Mr. Musk’s advisers’ preliminary analysis of the information provided by Twitter to date leads Mr. Musk to strongly believe that the proportion of fake and spam accounts included in the reported mDAU count is well above 5%.
Musk’s team also says that based on its conversations with company executives, it understands that Twitter includes accounts that have been suspended within its active user metrics, which it says would see Twitter still including fake and fake accounts. known spam within their publicly reported figures. Musk’s team also says that Twitter’s process for determining the percentage of fake accounts “appears to be arbitrary and ad hoc,” further clouding its metrics.
Based on these ongoing questions, and Twitter’s failure to provide adequate justifications for it, Musk and company want to withdraw, which will now put the onus on the SEC and/or the courts to decide whether the reasoning here is warranted and What. progress, or not, with the merger.
Which could spell disaster for Twitter, which has already cut executive positions and changed its entire business focus, in preparation for a pending acquisition of Musk.
In fact, this week, reports suggested that Twitter CEO Parag Agrawal is ‘willing to go to war’ for Elon Musk to go ahead with his takeover offer, even if Musk seeks to withdraw from the process. Agrawal would personally get a big payday if the Musk deal went through, but more than that, the fact that the deal falls apart now would raise major questions about the future of Twitter and its ability, as a business, to become a more viable business. valuable proposition.
The general consensus so far has been that Musk will ultimately have to go ahead with his Twitter acquisition push either way, because Musk waived several due diligence measures in his initial offer, in order to expedite the transaction.
But in today’s letter, the Musk team has also provided a note of clarity on this point:
“Despite public speculation on this point, Mr. Musk did not waive his right to review Twitter data and information simply because he chose not to seek this data and information prior to entering into the Merger Agreement. In fact, he negotiated the access and information rights within the Merger Agreement precisely so that he could review data and information that is important to Twitter’s business before funding and completing the transaction.”
It seems, then, that a showdown is brewing, with Musk now making the move that many expected, which will force Twitter to respond and provide a detailed explanation of it to the SEC.
Twitter board chairman Bret Taylor was quick to respond to the news:
Twitter’s board is committed to closing the transaction at the price and terms agreed with Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Court of Chancery.
—Bret Taylor (@btaylor) July 8, 2022
Will Musk be able to get out of the deal, or will Twitter be able to force Musk to pay, under the terms of the deal?
It looks like things are about to get really ugly, which can only be bad for Twitter as a business.