Elon Musk asserts his “right to terminate” Twitter deal
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Representing bot activity as less than 5% but using a sample size of 100, when you are claiming millions of active accounts, can't easily be seen as honest. Since statistics which Twitter is expected to know as a matter of their duty to shareholders , makes it plain that the sample size is too small.
Too many bots = shareholders were misled as to true number of active accounts.
Too many bots = advertisers were misled as to potential reach.
As for that bid, the time for due diligence is before, not after, one signs the merger agreement.
FWIW I have shares in Twitter and would prefer them to remain a publicly traded company.
It's very much related to the bid. If you materially mis-represent your company then it's a valid reason to scrap the deal.
> As for that bid, the time for due diligence is before, not after, one signs the merger agreement.
That's not how it works.
Try calling Twitter: "I'm doing due diligence on you guys, could you open your books to me"?
They'll laugh at you and hung up.
The agreements is a pre-requisite of doing what "due diligence" means in this context.
"Due diligence" specifically involves looking at things that you're typically not allowed to looked at.
Things like auditing financials of the company, doing an audit of the source code, proprietary technology etc.
It requires the company being acquired to share a lot of proprietary information.
The agreement, which includes $1 billion breakup clause, is necessary to filter out people who are not serious.
> They'll laugh at you and hung up.
Sure, but we're not the richest person on the planet, Elon Musk
https://arstechnica.com/tech-policy/2022/05/twitter-board-te...
https://www.bloomberg.com/opinion/articles/2022-05-17/elon-m...
Section 5.11 (note that "Parent" / "Acquisition Sub" refers to Musk and "Company" refers to Twitter):
> Each of Parent and Acquisition Sub has conducted, to its satisfaction, its own independent investigation, review and analysis of the business, results of operations, prospects, condition (financial or otherwise) or assets of the Company and its Subsidiaries. In making its determination to proceed with the transactions contemplated by this Agreement, including the Merger, each of Parent and Acquisition Sub has relied solely on the results of its own independent review and analysis and the covenants, representations and warranties of the Company contained in this Agreement. Parent and Acquisition Sub hereby acknowledge that, notwithstanding anything contained in this Agreement to the contrary, (i) neither the Company nor any of its Subsidiaries, nor any other Person, makes or has made or is making any express or implied representation or warranty with respect to the Company or any of its Subsidiaries or their respective business or operations, in each case, other than those expressly given solely by the Company in Article IV; and (ii) neither Parent nor Acquisition Sub is relying on any express or implied representation or warranty, or the accuracy or the completeness of the representations and warranties set forth in Article IV, with respect to the Company or any of its Subsidiaries or their respective business or operations, in each case, other than those expressly given solely by the Company in Article IV.
now assume twitter lied in those filings
Why should we trust that they are being honest?
So did they lie about the bots? Who knows? Do they always tell the truth? Well, I think you could reasonably argue not quite.
So the argument wouldn’t be that they lied. It would be that the information they provided wasn’t useful to gauge the true scope of the “bot problem” on Twitter - at best it’d be misleading by omission, which is almost certainly not illegal given what publicly-traded companies do all the time. (Making truthful statements and being fully transparent with all facts of a business are clearly not the same thing.)
Part of the reason Twitter is so hesitant to put some number on bots is because we’d first have to agree on how to define it exactly and how to measure it objectively. If someone uses the API or third-party app or integration to interact with Twitter, how do you prove they’re not a bot? Twitter’s definition avoids that by focusing on people who can see ads on the website and if you’re actually visiting the website proper (or using an official app) you’re much less likely to be a bot to begin with.
But honestly, all this stuff is just a distraction anyway. The SEC statements were there for years and if he doubted it this could have come up during due diligence. He only is making a stink about it now because a) he wants to get out of the deal at the quoted price and b) he wants to embarrass Twitter in the process. In fact, it seems to me this whole thing from the get-go was an exercise in the hopes of uncovering evidence of something salacious regarding “censorship” and various posturing around it. There never appeared to be any realistic and serious plans to address the issues at hand, just to gesticulate wildly about it in front of the press. I think those truly concerned about the problems being discussed should have hoped for better from this whole thing.
The bid gave Musk access to inside information.
> the time for due diligence is before, not after, one signs the merger agreement.
I bought a house. The due diligence period to inspect the house, get a survey, etc. was after we entered into the contract and before closing.
I know with the crazy housing markets, this might not be something anymore, but in times past you would enter into a CONDITIONAL contract and set the price, with the stipulation that the inspection has to be satisfactory to remove the conditions. Otherwise, after you signed your contract, the house is yours, and the survey just tells you what you are obligated to fix.
Also, Business deals usually allow parties to enter into things like NDAs for due diligence, as well as signing things like Memos of Agreement to get a roughed out deal, pending a thorough due diligence. I believe he's past (or waived) the due diligence. I'm sure there is a back-out clause, but that has $$$ attached and he's trying to wiggle out without paying, is what it seems like.
Right, because thats what you included in your offer contract. Now, imagine that you didn't have anything in your offer about contingent on inspection. Do you think you would have standing to back out of the deal?
And many people, just like Musk, waive their right to terminate the contract due to inspections, loan approval, etc. For the same reason that he did - it gives the seller less reason to reject your offer.
There are two whole sections from Section 4.1 through Section 5.11, comprising 16 pages of representations and warranties, which incorporate a wide swath of statements (including public disclosures to shareholders), not to mention two pages of conditions, etc. including specifically:
> Section 5.5 Information Supplied. None of the information supplied or required to be supplied by or on behalf of Parent or any of its Representatives expressly for inclusion or incorporation by reference in the Proxy Statement shall, at the time it is first mailed to the Company’s stockholders and at the time of the Company Stockholders’ Meeting to be held in connection with the Merger, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
It says right there ~"if Twitter has been lying to its shareholders I can void the contract."
If Twitter has been lying to its shareholders, then senior leadership is already in trouble and may be going to jail, but there's no evidence of that.
> Section 6.4 Access to Information; Confidentiality. Upon reasonable notice, the Company shall (and shall cause each of its Subsidiaries to) ... furnish promptly ... all information concerning the business ... as may reasonably be requested ... for any reasonable business purpose related to the consummation of the transaction...
I think it makes perfect sense that any financier will ask "How many users does Twitter have?" And that entitles him to this information.
Twitter doesn’t know what it doesn’t know. It’s dropping a bot estimate that may or may not have shaky foundations. It knows it’s bot “estimate” could be low, perhaps significantly so. It knows that every point over their best estimate fuels Musk’s fears and ultimately becomes a PR and potential legal disaster.
They will have internal employee pressures to make Musk go away.
They will have political pressures to make Musk go away.
The shareholders want the offer, but Twitter hasn’t really gave a shit about them before.
The thing you quote very specifically only applies to the Proxy Statement provided to shareholders as part of the process of this specific deal. It has nothing to do with previous communications and "if youve ever lied about anything then the contract is void".
> it's not fair to suggest this was 73-page contract was an as-is agreement with no warranties express or implied
Article IV is what binds Twitter (Article V is what binds Musk). It very explicitly says this is as-is with no warranties express or implied. Section 4.25:
> Section 4.25 No Other Representations or Warranties. Except for the representations and warranties expressly set forth in this Article IV, neither the Company nor any other Person makes or has made any representation or warranty of any kind whatsoever, express or implied, at Law or in equity, with respect to the Company or any of its Subsidiaries or their respective business, operations, assets, liabilities, conditions (financial or otherwise), notwithstanding the delivery or disclosure to Parent and the Acquisition Sub or any of their Affiliates or Representatives of any documentation, forecasts or other information with respect to any one or more of the foregoing. Without limiting the generality of the foregoing, neither the Company nor any other Person makes or has made any express or implied representation or warranty to Parent, Acquisition Sub or any of their respective Representatives with respect to (a) any financial projection, forecast, estimate or budget relating to the Company, any of its Subsidiaries or their respective businesses or, (b) except for the representations and warranties made by the Company in this Article IV, any oral or written information presented to Parent, Acquisition Sub or any of their respective Representatives in the course of their due diligence investigation of the Company, the negotiation of this Agreement or the course of the Merger, or the accuracy or completeness thereof.
This is also why people offered all cash for a house even when mortgages were cheap (avoids the financing contingency).
Perhaps it's different if you're acting like an angel investor in housing, but for an average family, it's financial Russian Roulette.
1) In my state there's a mandatory seller disclosure. If the seller knew about a problem with the house and didn't disclose it on the seller disclosure you can sue them if you can prove they new about the defect and intentionally didn't disclose it, so there's at least that.
2) Home inspectors don't take legal responsibility if the inspection misses something important, they only offer to, at most, give you your money back on the inspection. So you have to be optimistic that the inspector has a clue what they are doing and can catch future problems when you rely on an inspection.
Buying a home while waiving inspection might be Russian Roulette, but I bet the odds are less than 16.7% that waiving inspection will financially kill you.
For example, a house goes up for sale, three people bid within three days of the listing. Two of them for $300,000 with inspection waived, one for $300,000 with inspection not waived. The bid with inspection not waived is never even considered. It would be irrational for the seller to take the risk associated with the weaker bid.
Twitter CEO said they use “thousands” selected randomly and reviewed by multiple humans.
It refers to 5% of monthly active users who are shown adds.
This may come across as pedantic, but I'm genuinely asking: can a bot be "shown" ads? If a bot never loads the js or html that serves the ad, was it "shown" ?
Ultimately, however they measure ads shown, they have some process to determine what they believe to be bot ad views. We can only discuss at that level without more information.
Because that isn't as easy, what they have is just an estimate. And what makes Elon estimate any better than twitter's?
Elon figured out that he can make money by manipulating the market via twitter posts. An ability to control the platform would allow to have even more impact and it would be harder to prove that he had anything to do with it.
The purchase backfired his stock tanked (not just because of the purchase but other actions he did recently, he put me off and I was a huge fanboy before) so he is looking for excuse to get out.
Also from personal experience I think whatever they are doing also has a lot of false positive. I managed to not have a twitter account for so many years, but created one as I wanted to post a response. I think it might worked once, now whenever I post something it just refuses (forgot exact message but essentially something that my post looks suspicious). I don't think I will be going back.
That makes me believe they might be also losing many real users.
"An estimated two-thirds of tweeted links to popular websites are posted by automated accounts – not human beings'
Complete Report PDF (2018): https://www.pewresearch.org/internet/wp-content/uploads/site...
"Botometer": https://botometer.osome.iu.edu/
"Botometer (formerly BotOrNot) checks the activity of a Twitter account and gives it a score. Higher scores mean more bot-like activity."
"19.42% of active Twitter accounts are fake or spam:" https://whatsnewinpublishing.com/19-42-of-active-twitter-acc...
Among the demographic 16 and 24 years old, 46% of users worldwide admit to using ad blockers. I would be curious to see if this statistic and these reports make it back to people paying for online ads.
The margin of error of a sample of a given size does not depend on the size of the universe from which the same is drawn; a sample size of 100 gives a too big of an MoE to support a claim of “less than 5%” at typically acceptable levels of confidence, but the size of the universe of accounts is irrelevant to it.
... for plausibly relevant company sizes. It doesn't matter if your universe is large vs very large vs enormous.
It does matter if the size of your universe is close to the size of your sample.
"One possibility is that Musk will keep sending nasty letters and tweets about bots, and the people — including the ones working for him — whose job it is to get the deal done will keep working to get the deal done, and one day Musk will be mid-sentence typing a nasty tweet about Twitter and find out that he owns it."
You are saying that "many of us" have a net worth in the 4m-40m range.
[0] https://www.cnbc.com/2022/05/13/elon-musk-cant-just-walk-awa...
Hopefully the two groups bickering will come to some sort of agreement and save the many millions of lawyer fees, but who knows.
Not sure how you would contract for that, but the actual value of the asset has significantly declined.
Collars are not uncommon in M&A agreements. Diligence clauses, far more common. Neither made it into the final agreements negotiated in this case. Hence the drama.
The “market” price of the asset could move for all manner of unanticipated reasons.
Either way it's a sum of money in which a lawsuit is effectively inevitable, by very simple game theoretic analysis. The amount of confidence in losing one would need in order to not even try with that amount at stake would be sky high and I doubt either side could end up that confident that a judge wouldn't at least partially rule in their favor.
Twitter would pay in these circumstances:
> (i) (A) a Third Party shall have made a Competing Proposal ...
> (ii) this Agreement is terminated by the Company pursuant to Section 8.1(c)(ii); or
> (iii) this Agreement is terminated by Parent pursuant to Section 8.1(d)(ii)
(i) and (ii) involve competing offers to acquire Twitter, which I don't think are likely given market conditions.
(iii) is defined in Section 8.1(d)(ii)
> (ii) prior to the receipt of the Company Stockholder Approval, if the Company Board shall have made an Adverse Board Recommendation Change.
"Adverse Board Recommendation Change" is defined in length in Section 6.5(d), but basically means that the board recommended shareholders to reject the deal.
[1] https://www.sec.gov/Archives/edgar/data/1418091/000119312522...
That said, I have a feeling he will weasel out with nothing more than a slap on the wirst, if even that.
Twitter's board isn't exactly known for its competence and backbone, so I suspect it will back down if Elon yells and lies enough about whatever pretext he decides to use to back out of the deal.
---
I recall when I interviewed there in ~2008?? Don't recall, and they asked me in the interview what I thought Twitter was: I stated "Twitter is a global sentiment engine thats able to take the pulse of users around the globe on any topic"
I didn't get the job.
No. Twitter is not the press, nor is Twitter a public utility. Twitter is under no obligation to provide "Truth" or "transparency" to the public. It's a microblogging service, not the BBC.
Full Stop.
*publicly listed. so they need to be transparent as far as market information goes, while not disclosing corporate secrets or breaching personal data regulations.
and the CEO said from the start that they cant disclose more details regarding their 5% assessment.
the merger agreement is clear. the only thing that can free elon from completing the deal is lack of regulator approval and no regulators are even looking at the deal
Twitter might let Musk off the hook for $1 billion, but he's paying something to get out of this.
1) Requests for information are assumed to be to facilitate _closing the deal_. Its not just for any willy-nilly request he wants.
2) It specifically is not to service "due diligence". This is the "open for interpretation" part. The contract _separately_ calls out that Musk has had the opportunity to seek information for due diligence, and Twitter has already fulfilled those requests to his satisfaction. So with that in mind, I would interpret the obligation to service information to be limited to things e.g. related to acquiring financing, or to fill out paperwork etc.
The real reason is that he can't afford to buy Twitter at the negotiated price, which is entirely on Musk.
EDIT: pay up in this context probably means $1 billion, though given that he is the world's richest man, it could conceivably include specific performance of the contract (meaning going through with the deal).
Had he acted with integrity and honesty, he wouldn’t be in this situation of his own making, but those traits aren’t what made him wealthy.
Long way for that, you'd have to (at least):
* Prove the report contains false info
* Prove it happened on purpose AND with an intent to commit fraud
* Prove it affects the transaction in a substantial way
* Prove this is enough to stop the transaction from happening, and get away with zero consequences
... and it won't be hard for Twitter's lawyers to turn any of these on their favor.
>>"Twitter has and will continue to cooperatively share information with Mr. Musk to consummate the transaction in accordance with the terms of the merger agreement," the company said in a statement.
>>"We believe this agreement is in the best interest of all shareholders," it added. "We intend to close the transaction and enforce the merger agreement at the agreed price and terms."
If they let him walk away, they would get sued by their own shareholders for losing them a ton of money.
At this point the deal is as much politics (not left/right, but posturing between powerful institutions and individuals) as business, so anything could happen.
> I literally can't imagine ever wanting to do business with Elon Musk.
Never mind Twitter. Buying a car from that guy is really absurd and dangerous.
Very true. I was rooting hard for Tesla to succeed a number of years ago, but these days there's no chance I would even consider buying one of their cars. A few people close to me own Teslas and I worry quite a bit about their safety. I really hope that Musk's absurd behavior lately opens some more eyes to just how reckless and irresponsible the company is.
With as obnoxious as Elon Musk has been on his Twitter account, it is far more likely that Elon Musk is providing the Twitter-lawyers with plenty of examples for their inevitable court case.
Ex: Elon Musk needs to explain his "I don't care about the financials of this deal" statement to a jury, or "Single most annoying problem on Twitter" tweets.
https://twitter.com/elonmusk/status/1511230314902953984
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When you have an obnoxious dude making public statements, lawyers want them to make _more_ statements, not fewer statements.
Legally speaking, this letter from his lawyers state the opposite. Elon Musk is trying to call off the deal and __NOT__ buy Twitter.
Enough with the Billionaires ignoring contacts when they aren't convenient to them.
<fantasy-moment>
I wonder if this will ruin him financially, and then we’ll stop hearing from him.
</fantasy-moment>If it really was < 5% why don't Twitter just release the data Musk is asking for?
> Each of Parent and Acquisition Sub has conducted, to its satisfaction, its own independent investigation, review and analysis of the business, results of operations, prospects, condition (financial or otherwise) or assets of the Company and its Subsidiaries. In making its determination to proceed with the transactions contemplated by this Agreement, including the Merger, each of Parent and Acquisition Sub has relied solely on the results of its own independent review and analysis and the covenants, representations and warranties of the Company contained in this Agreement
So, in essence:
1) Musk has been afforded the opportunity to address any concerns he has with Twitter
2) Any concerns of Musks have been satisfactorily resolved by Twitter
3) In determining said satisfaction, Musk is relying on his own judgement and analysis, and is not relying on any analysis by Twitter.
There is absolutely 0 ground to his complaints today and claiming he "isnt being given the information hes been asking for" or that "I was going off your numbers but I want to run my own".
But that's not what he's saying, he's saying "the bot problem is way worse than you're saying, therefore the $54.20 price is too high."
Twitter users don't give a fig about Twitter's ad impressions. They care about what fraction of comments or interactions are in fact with bots or astroturfers. From the perspective of Twitter as a communications medium rather than an advertising channel, this is the relevant statistic.
Twitter has never claimed that the number is accurate nor important in absolute terms (“we aren’t sure” features prominently in their filings!) rather it’s a number that is important for understanding growth and evolution of the platform. The number matters quarter-to-quarter, not in isolation.
Active human users matters in the context of advertising, it’s a pointless distraction that musk is employing to back out of the deal.
Let’s imagine there is a real measure of “non-human users” and lets say it turns out that Twitter underestimated by 50%… so? Musk long said he wasn’t buying Twitter as a financial move, and that he has a plan to be wildly profitable off of a small proportion of twitter’s users so unless 95% of twitter’s users aren’t real, it doesn’t impact his (absurd and ridiculous) plan.
If Twitter did come out and say they underestimated non human activity by 50% or the like then yes Musk should be forced to continue the sale.
Twitter haven't though. They are still pretending that less than 5% of daily active users are non-monetizable.
The type of attribution based advertising you are talking about certainly also exists whereby the advertiser pays $x per (milli)impression, then a further $x for click-thru and then a final $x for a conversion. However the vast majority of twitter's revenue is in the first bucket (CPM) which is entirely valued based on the size and quality of the audience.
There are certainly a minority of major brands that operate as advertisers with awareness campaigns — sponsored hashtags are a good example — but if you read the Twitter filings, it’s very clear that their focus is performance based advertising — and that’s where they see their future, too.
Maybe a decade ago you could have said that advertisers were just trusting platforms to deliver value, and that ad-fraud could make or break a platform if they got caught, but that’s not true anymore, it’s a much more sophisticated market. Advertisers aren’t (as) dumb (as they once were).
Brand safety is a whole other kettle of fish — that’s a concern across all types of advertising, and not relevant to the audience, rather the content of the platform.
If you are talking about the majority of ad impressions being programmatic/attribution based then yes you are correct, however if you talking about dollars spent that direct sponsorship with large internal agencies is still very much king.
To give some context, large corps would routinely drop $5 million on a direct deal with Twitter for a combination of promoted tweets, hashtags, trending etc. This was also almost pure margin as there was no middle DSP/SSP taking a cut. To get the same profit from the method you are purporting to be most common would take years.
>Maybe a decade ago you could have said that advertisers were just trusting platforms to deliver value, and that ad-fraud could make or break a platform if they got caught, but that’s not true anymore, it’s a much more sophisticated market. Advertisers aren’t (as) dumb (as they once were).
Maybe a decade ago? So the people who are now in senior positions at the agency and call all the shots are the ones making the major deals. Well then it would stand to reason that the biggest profit comes from deals that are structured like they were 10 years ago.
For instance, I have 5 accounts which automatically tweet out the latest posts from 5 of my websites. They are automated and probably technically bots, but that seems different than an account that is meant to give fake likes/retweets.
The comment was 5% of active users never receive ads. Some real people turn javascript off as well and some user ad blockers.
Majority of Twitter users don’t tweet, they’re still active
https://www.calnewport.com/blog/2022/05/03/the-real-problem-...
> The real outrage, I conclude, is not the details of how Elon Musk might change Twitter, but the fact that so many people in positions of power — politicians, business leaders, journalists — still pay so much attention to these 240-character missives.
> “Twitter’s increasingly heated wrangling is not just far from a considered democratic debate,” I write, “but has truly become a spectacle driven by a narrow and unrepresentative group of elites.”
Why do we care so much about what happens to Twitter?
Should it? No. Is it pathetic that it is? Yes.
But is vs. ought. It IS a powerful platform but ought not be.
At some point, to have a functioning democracy, the populace has to be educated. Then when there's misinformation, they'll just ignore it.
In the past, we've gotten around this by it being expensive to broadcast ideas to large numbers of people. You had to be a newspaper or TV network, and newspapers and TV networks employed people worried about their reputation, so nobody ever published op-eds about how Bill Gates is injecting us with 5G microchips or whatever. This weeded out quite a lot of conspiracy theories and whatnot. But the reality is that the Internet changed the calculus there; anyone can publish anything to a large number of people. With that floodgate open, there is no going back and we have to teach people to critically analyze what they hear on the Internet. It's the last line of defense.
This means that all the bluster over Facebook and Twitter and free speech needs to translate to increased funding for schools, and that if we start right now it will probably take a couple generations to get to a better place. There is no quick fix to make democracy work, only hard work and time.
How do you ignore misinformation that you don’t know is misinformation?
That's true of pretty much all social media, including HN (though HN is better than most).
Like there's tons legitimate talking points that people can make for or against Kamala Harris' body of work as a politician, but once people start talking about the KHive on Twitter in those discussions, it totally distracts from those points.
So by pretending Tweets about someone matter more than what someone actually does, they can try to control or shift the narrative away from someone who actually has power (Harris) to something else that doesn't (people using a particular hashtag).
I think it's more likely Musk is making up reasons to back out of the deal .
Just needs to write a $1B check.