“Mr. Musk is terminating the Merger Agreement because Twitter is in material breach of multiple provisions of this Agreement, appears to have made false and misleading statements relied upon by Mr. Musk in entering into the Merger Agreement, and is likely to be materially adversely affected by company,” Musk’s lawyers wrote in a letter to Twitter chief legal officer Vijaya Gadde. Musk points to 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 below 5%. Musk had no apparent qualms with Twitter’s bot count before signing the deal, and in fact indicated he planned to tackle the platform’s spam problem as the company’s new owner. It’s widely believed that Musk wants out because the markets took a dive shortly after the terms of the deal were agreed, also taking a solid chunk of Tesla’s billions over the cliff. Shares in the electric vehicle maker halved between April and the end of May and haven’t recovered since. By mid-May Twitter’s stock price had fallen to less than $40 a share — a significant discount to the $54.20 a share Musk agreed to in late April. However, Musk’s argument is essentially that Twitter misrepresented the number of monetizable daily active users and thereby breached the terms of the agreement: Twitter is in violation of the Merger Agreement because the Merger Agreement appears to contain materially inaccurate statements. Specifically, in the Merger Agreement, Twitter asserted that no document filed by Twitter with the US Securities and Exchange Commission since January 1, 2022 contained an “untrue statement of a material fact” (Section 4.6(a)). Twitter has repeatedly made statements in such filings about the portion of its mDAUs that are fake or spam, including statements that: “We have conducted an internal review of a sample of accounts and estimate that the average of fake or spam accounts during the first quarter 2022 accounted for less than 5% of our mDAU during the quarter,” and “Once we determine that an account is spam, malicious automation, or fake, we stop counting it in mDAU or other related metrics.” Mr. Musk relied on this representation in the Merger Agreement (and on Twitter’s numerous public statements about false and spammy accounts in its public SEC filings) when it agreed to enter into the Merger Agreement. Mr. Musk has the right to seek rescission of the Merger Agreement in the event that such material statements are found to be false . Musk’s legal team continues to argue that Twitter hasn’t given it sufficient access to its data to do its own analysis, though it’s unclear how that analysis will differ from Twitter’s long-standing methods. The letter also says that Twitter told Musk in an unreported phone call that the company includes suspended accounts in its monetized daily active user numbers, and points to that as evidence of his charges that the company’s metrics don’t is above the table. … Twitter’s disclosure that it stops counting fake or spammy users in its mDAU when it determines that those users are fake appears to be false. Instead, we understand, based on Twitter’s statements during a call with us on June 30, 2022, that Twitter includes accounts that have been suspended — and are therefore known to be fake or spam — in its quarterly mDAU number even when it knows that suspended accounts were included in the mDAU for that quarter. Brett Taylor, the chairman of Twitter’s board, responded to Musk’s letter on Friday, underscoring the company’s intentions to complete the deal. “Twitter’s board is committed to closing the transaction at the price and terms agreed upon with Mr. Musk and plans to take legal action to enforce the merger agreement,” Taylor wrote. Twitter CEO Parag Agrawal retweeted Taylor’s tweet. Twitter’s board is committed to closing the transaction based on the price and terms agreed with Mr. Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Court of First Instance. — Bret Taylor (@btaylor) July 8, 2022 Agrawal previously pushed back against Musk’s charge that Twitter downplays fake accounts, describing the company’s methodology, which generalizes platform-wide data based on a random sampling of accounts. “We do not believe this particular assessment can be performed externally given the critical need to use both public and private information (which we cannot share),” Agrawal wrote in May. “Externally, it’s not even possible to know which accounts count as mDAUs on any given day.” It’s not clear that Musk’s unsubstantiated criticism of Twitter’s bots will be considered sufficient reason to end the deal, especially since Twitter wants to see it through. For better or worse, we’ll be hearing a lot more about that argument in the coming days as Musk and Twitter begin to dissect the messy, months-long court ordeal. The story unfolds…
