After what has been a downward spiral of disastrous events, Elon Musk has officially filed a motion with the SEC to terminate his $44 billion Twitter takeover bid, based on Twitter’s failure to provide accurate information on the number of fake accounts on their platform. In a letter filed on behalf of Musk, he is looking to cancel his acquisition due to a ‘material breach of multiple provisions’ of the original merger agreement.
As per the filing:
“[Twitter] appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect (as that term is defined in the Merger Agreement).”
Turning Tail
Musk’s team says that, despite repeated requests for qualifying information, Twitter had failed to provide them with the data required to make a true enough assessment of the number of fake accounts on the platform. Musk’s team went on further to say that it has been seeking more information from Twitter for nearly two months, only for Twitter to provide limited access to the required data, thus violating the terms.
All in all, Musk’s team claims that Twitter has failed to provide them with due information on:
Information related to Twitter’s process for auditing the inclusion of spam and fake accounts in mDAU.
Information related to Twitter’s process for identifying and suspending spam and fake accounts.
Daily measures of mDAU for the past eight (8) quarters.
Board materials related to Twitter’s mDAU calculations.
Materials related to Twitter’s financial condition.
Because Twitter failed to comply with these within a favorable period, Musk’s team concludes that such a clear violation of the deal’s terms is reason enough to cancel the agreement. The letter also notes how Musk’s team remains unconvinced by Twitter’s metrics, believing that fake accounts are more prevalent than Twitter claims. Musk’s team also says that, based on its discussions with company executives, they understand that Twitter includes accounts that have been suspended within its active user metrics, which, according to them, would see Twitter still including known fake and spam accounts within its publicly reported figures. Musk’s team also says that Twitter’s process of determining the percentage of fake accounts is ‘arbitrary and ad hoc’, further clouding their metrics.
Long story short, all these uncertainties push Musk and Co. to back out of the deal, putting the onus on the SEC and the courts to decide whether the reasoning is justified. Cancellation would be disastrous for Twitter and recent reports have suggested that CEO Parag Agrawal is ‘Willing to go to war’ if it means seeing the deal pushed through. The deal falling apart has more to do with determining Twitter’s future viability than anything else.
The Wrap
So far, the overriding consensus will have Musk eventually go through with his takeover, which can partly be blamed on his rash action of having waived various due diligence to ‘speed up’ his acquisition – yeah, look how that turned out now. At this point, negotiations seem to no longer be an option. Instead, what we have now is an old-fashioned standoff.
Seems that it’s now a game of cunning and wit. Musk is making a move that many had already expected, so if Twitter can find a way to ride off of that, then it may yet be able to turn the tide. Regardless of the outcome, we can all safely assume one thing – never take a billionaire’s word at face value.
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