It appeared inevitable, and now, Elon Musk has formally filed a movement with the SEC to terminate his $44 billion takeover of Twitter, primarily based on Twitter’s failure to supply correct info on the variety of faux accounts on its platform.
In a letter filed on behalf of Musk and his funding companions at Morgan Stanley, Musk is searching for to cancel the acquisition resulting from a ‘materials breach of a number of provisions’ of the unique merger settlement.
As per the submitting:
‘[Twitter] seems to have made false and deceptive representations upon which Mr. Musk relied when coming into into the Merger Settlement, and is prone to endure a Firm Materials Antagonistic Impact (as that time period is outlined within the Merger Settlement).”
Musk’s crew says that, regardless of repeated requests for qualifying info, Twitter had failed to supply them with the info required to make an correct and true evaluation of the variety of faux accounts on its platform.
“Whereas Part 6.4 of the Merger Settlement requires Twitter to supply Mr. Musk and his advisors all knowledge and data that Mr. Musk requests “for any affordable enterprise objective associated to the consummation of the transaction,” Twitter has not complied with its contractual obligations.”
Musk’s crew says that it has been searching for extra info from Twitter for almost two months, with Twitter solely offering restricted entry to the required knowledge, in violation of the phrases.
“Typically Twitter has ignored Mr. Musk’s requests, generally it has rejected them for causes that seem like unjustified, and generally it has claimed to conform whereas giving Mr. Musk incomplete or unusable info.”
In complete, Musk’s crew says that Twitter has failed to supply them with info on:
- Info associated to Twitter’s course of for auditing the inclusion of spam and faux accounts in mDAU
- Info associated to Twitter’s course of for figuring out and suspending spam and faux accounts
- Each day measures of mDAU for the previous eight (8) quarters
- Board supplies associated to Twitter’s mDAU calculations
- Supplies associated to Twitter’s monetary situation
As a result of Twitter has didn’t adjust to these requests inside an affordable time interval, that, Musk’s crew says, is a violation of the deal’s phrases, and is subsequently cause sufficient to cancel the settlement.
The letter additionally notes that Musk’s crew remains to be unconvinced of Twitter’s metrics, with its personal evaluation of Twitter’s expanded utilization knowledge, which it supplied final month, exhibiting that faux accounts are extra prevalent within the app than Twitter claims:
“Preliminary evaluation by Mr. Musk’s advisors of the knowledge supplied by Twitter so far causes Mr. Musk to strongly imagine that the proportion of false and spam accounts included within the reported mDAU depend is wildly increased than 5%.”
Musk’s crew additionally says that, primarily based on its discussions with firm execs, its understanding is that Twitter consists of accounts which were suspended inside its energetic consumer metrics, which it says would see Twitter nonetheless together with recognized faux and spam accounts inside its publicly reported figures. Musk’s crew additionally says Twitter’s course of for figuring out the share of faux accounts ‘seems to be arbitrary and advert hoc’, additional clouding their metrics.
Primarily based on these ongoing questions, and Twitter’s failure to supply satisfactory justifications for such, Musk and Co. need to pull out, which is able to now put the onus on the SEC and/or the courts to determine whether or not the reasoning right here is justified, and the way it strikes ahead, or not, with the merger.
Which could possibly be a catastrophe for Twitter, which has already minimize govt jobs and shifted its whole enterprise method, in preparation for a pending Musk takeover.
Certainly, this week, studies urged that Twitter CEO Parag Agrawal is ‘keen to go to battle’ so as to make Elon Musk observe by way of together with his takeover bid, even when Musk appears to again out of the method. Agrawal would personally be in for an enormous payday if the Musk deal had been to undergo – however greater than that, the deal falling aside now would elevate important questions over Twitter’s future, and its capability, as a enterprise, to change into a extra viable, precious proposition.
The overriding consensus to date has been that Musk will finally need to undergo together with his Twitter takeover push both manner, as a result of Musk waived varied due diligence measures in his preliminary supply, so as to expedite the transaction,
However in right this moment’s letter, Musk’s crew has additionally supplied a word of readability on this level:
“Regardless of public hypothesis on this level, Mr. Musk didn’t waive his proper to evaluation Twitter’s knowledge and data just because he selected to not search this knowledge and data earlier than coming into into the Merger Settlement. In truth, he negotiated entry and data rights inside the Merger Settlement exactly in order that he may evaluation knowledge and data that’s vital to Twitter’s enterprise earlier than financing and finishing the transaction.”
It appears, then, {that a} stand-off is coming, with Musk now making the transfer that many had anticipated, which is able to power Twitter to reply and supply an in depth rationalization of such to the SEC.
Twitter board Chairman Bret Taylor was fast to answer the information:
The Twitter Board is dedicated to closing the transaction on the value and phrases agreed upon with Mr. Musk and plans to pursue authorized motion to implement the merger settlement. We’re assured we are going to prevail within the Delaware Courtroom of Chancery.
— Bret Taylor (@btaylor) July 8, 2022
Will Musk be capable of get out of the deal, or will Twitter certainly be capable of power Musk to pay up, primarily based on the phrases of the settlement?
It appears like issues are about to get actually ugly, which may solely be unhealthy for Twitter as a enterprise.
