It’s already been six weeks since the Twitter Board agreed on a Elon Musk’s $44 Billion Hostile Takeover Offer: So Where Do Things Stand at This Stage?
After much speculation, it now appears that Musk is looking to pull out of the deal altogether, according to a new SEC filing.
In a letter sent to Twitter Counsel Vijaya Gadde, Musk’s team, has claimed that Twitter has violated the terms of the acquisition agreement by refusing to provide more information about the number of fake profiles on its platform, which Twitter pegs at 5% of its active user count. Musk himself has publicly disputed this figure, and now appears to be looking to use this as a means of withdrawing from his takeover bid.
According to the SEC note:
“Based on Twitter’s behavior to date, and the company’s latest correspondence in particular, Musk believes the company is actively resisting and thwarting his information rights (and corresponding company obligations) under the merger agreement. . This is a clear material breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all resulting rights, including his right not to consume the transaction and his right to terminate the merger agreement.”
Musk’s team says that despite repeated requests, Twitter has refused to elaborate on this 5% figure, which Musk believes is too low to be accurate. Musk’s team argues that the accuracy of this data is critical to securing the financing of Elon’s Twitter bid, and if Twitter cannot provide further details to bolster this figure, that would amount to a breach of the terms of the deal, which which would allow Musk to get out of his acquisition drive.
Which is not exactly how Twitter sees it.
Twitter has argued that its 5% fake profile figure is accurate, based on its own sampling and reporting, through processes that have been accepted by the SEC in the past, and as such, that should be the number agreed to under the terms. of the agreement. .
In response to Musk’s latest SEC letterTwitter has continued to maintain its position on this front:
“Twitter has and will continue to cooperatively share information with Mr. Musk to complete the transaction in accordance with the terms of the merger agreement. We believe that this deal is in the best interest of all shareholders. We intend to close the transaction and enforce the merger agreement at the agreed price and terms.”
So can Musk really back out of the deal if he sticks to the argument that Twitter’s fake profile counts aren’t correct?
In his initial push to speed up his deal with Twitter, Musk resigned from several due diligence measures to speed up his acquisition of the app, while there is a billion-dollar break clause built into the terms of the deal that Musk would have to pay, one way or another. But most pundits seem stumped as to whether Musk could use this clause as a deal-breaker, largely because, in reality, Musk is probably right, and there are probably a lot more fake accounts and bots active on Twitter than ever before. that the company recognizes.
Huge botnets have been spotted in the past, including some spanning 500,000 fake accounts within a single group. back in 2019, cabling reported that bot profiles dominated political news streams, with bot profiles contributing up to 60% of tweet activity around some events, while in 2017, researchers at the The University of Southern California and Indiana University found that around 48 million Twitter accounts were automated, which is equivalent to 15% of active Twitter accounts.
Despite these findings, Twitter has consistently maintained that only 5% of accounts on its platform are fake, and that number has remained static since the company went public in 2013.
Which seems unlikely, right? I mean, how can that figure remain static all the time?
Based on this, and the fact that Twitter’s ad business relies on the accuracy of its audience reach data, Musk seems right to argue that if Twitter can’t provide more precise numbers or a better explanation of your assessment, then that’s a breach of the terms of the deal.
Musk has likened this to buying a house that turns out to be infested with termites.
“It sounds like you’re saying, ‘Okay, I agree to buy your house.’ You say the house has less than 5% termites. That is an acceptable number. But if it turns out that 90% are termites, that’s not right. It is not the same house.
Twitter is not 90% bots, but the analogy makes sense. And given that this is Elon Musk, the richest person in the world, there might well be a way for his team to discuss a way out of the deal, if they so choose.
But it won’t be easy.
Again, Twitter will seek to enforce the terms of the deal, including items Musk has waived, and it will likely require many months of legal proceedings to come to a conclusion on whether Musk should pay.
Which would be disastrous for the company. The stress and uncertainty of the deal has already led to several senior executives leaving the company, along with many other staff members, and he can only imagine that a protracted legal battle will further exacerbate the situation.
But it looks like that’s where things are headed, with Musk refusing to pay and Twitter refusing to elaborate, possibly because it can’t possibly accept Musk’s team accepting it.
Which could lead to a big mess at Twitter headquarters and ongoing problems for the company, in almost every way. That will derail future plans, slow down development and change the focus of the app.
Any way you look at it, anything short of a Musk acquisition will now leave Twitter with a significant mess to manage in the interim or deal with the fallout.
What comes next is unclear, but six weeks later, we’re still nowhere near a conclusion to Elon Musk’s Twitter takeover drama.