It’s now been six weeks since the whole Twitter Takeover drama with Elon Musk, which, after an insane amount of ‘negotiating’, now looks to end with Musk pulling out of the deal entirely, according to a new SEC filing.

In a letter sent to Twitter’s Chief Legal Officer Vijaya Gadde, Musk’s team has asserted that Twitter has breached the terms of the takeover deal by refusing to provide more insight into the number of fake profiles on its platform, which it pegs at 5% of its active user count. Musk himself has publicly questioned this figure and now looks to use it as a way to back out of his bid completely.

Accord to the SEC note:

“Based on Twitter’s behavior to date, and the company’s latest correspondence, in particular, Mr. Musk believes the company is actively resisting and thwarting his information rights (and the company’s corresponding obligations) under the merger agreement. This is a clear material breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement.”

All Bark

Musk’s team states that, despite repeated requests, Twitter has refused to elaborate further on this 5% figure, which Musk believes is far too low to be accurate. His team then proceeds to argue that this value is critical in securing financing for Musk’s bid – if Twitter can’t provide more detail to back this number up, then that would be tantamount to a breach of the deal terms.

Of course, Twitter sees it another way. It has argued that its estimates are accurate, based on its own sampling and reporting. Such has been accepted by the SEC in the past and, as such, should be the agreed number under the deal’s terms. Twitter continues to stand by on this front, as exemplified by its response to Musk’s latest SEC letter. Seems they won’t make it easy at all for Musk if he is trying to wiggle his way out of the deal.

Much to Twitter’s benefit, Musk did waive various due diligence measures to accelerate his bid. There’s also a $1 billion break clause built into the deal’s terms which Mr. Tesla would have to pay. Most experts seem to be stumped as to whether or not Musk can actually use the clause as a deal-breaker – largely because Musk is probably right and there are probably more fake accounts than Twitter would care to admit. Huge bot networks have been found on Twitter in the past, with a 2017 study conducted by researchers from the University of Southern California and Indiana University finding that around 48 million Twitter accounts were automated – an amount equalling 15% of its current user base.

Despite all this, Twitter maintains the 5% claim, citing that these numbers have been static since it went public in 2013. Honestly, that seems highly unlikely. Based on this and the fact that Twitter’s ad business relies on the accuracy of its audience reach data, Musk could argue that it can’t provide more accurate figures, or at least a better assessment, effectively breaching the deal’s terms. Musk equated this to “buying a house which turns out to be infested with termites.”. It won’t be easy, but then again, when has that ever been an option for Musk?

The Wrap

To effectively sum everything up, it’s a hot mess. Twitter will likely double down on reinforcing its stance that its claim is accurate and that they’ve been so good at keeping things steady that fake accounts never grew past 5% in the nine years it’s been public.

Either way, if Musk ends up not taking Twitter, things will be disastrous for the company – its leadership is in the trash bin, and HQs pretty much neck-deep in turmoil and paperwork as we speak. It seems likely that this is where things are heading, which derail future plans, slow down development, and change the app’s focus, provided that Twitter lasts that long. Any way you look at it, anything other than a Musk takeover will leave Twitter a steaming pile of rubble. Let’s just all pray that this real-life sitcom has a happy ending.

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Sources

https://bit.ly/3PZHYfD