Elon waived his right to due diligence when he first made the offer to buy Twitter, so backing out of the deal by arguing a lack of due diligence is very funny.
> Despite public speculation on this point, Mr. Musk did not waive his right to review Twitter’s data and information simply because he chose not to seek this data and information before entering into the Merger Agreement. In fact, he negotiated access and information rights within the Merger Agreement precisely so that he could review data and information that is important to Twitter’s business before financing and completing the transaction.
Is the merger agreement public?
The obvious legalese thing to do in Musk's buyers-remorse situation is to use the information rights to make demands so unreasonable no acquiree can reasonably honor them, which is exactly what he seems to have done here.
Copying a previous reply I've made on this:
Section 5.11 ("Parent" and "Acquisition Sub" is Musk, "Company" is 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
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.
If you are buying a bank under these same terms and the bank represents that they have $X in deposits, then it turns out that they actually have $X/2 in deposits are you saying the transaction should also be forced to proceed?
Is it meaningfully different here because X is # real users rather than dollars?
First, so far its not an argument that the data is "falsified or fraudulent". Its merely that the data is incorrect. Theres a very big difference, and the 10-Q claims are so measured and non-committal that its very hard to even find anything that could be construed as falsified/fraudulent. The claims themselves even go ahead and say it might not be right, even implying they have a significant likelihood of imprecision due to the methodology employed.
In order for the claims to be falsified/fraudulent, you would have to have actual deliberate lying and coverups to get there. In other words, they found 20% but _intentionally still put 5% even though its a made up metric that they can just move the goal posts on_. It just doesn't make any sense to do that and, in my opinion, is _extremely_ unlikely to be found during discovery.
Second, if the argument being made is that he thinks its higher than 5% _and isnt arguing deliberate fraud_ then the clause I pasted above absolves Twitter because it says Musk has been afforded the opportunity to fact check it and has no reason to debate the accuracy of the claim.
> Section 6.4 Access to Information; Confidentiality.
> Upon reasonable notice, the Company shall (and shall cause each of its Subsidiaries to) afford to the representatives, officers, directors, employees, agents, attorneys, accountants and financial advisors (“Representatives”) of Parent reasonable access (at Parent’s sole cost and expense), in a manner not disruptive in any material respect to the operations of the business of the Company and its Subsidiaries, during normal business hours and upon reasonable written notice throughout the period commencing on the date of this Agreement until the earlier of the Effective Time and the termination of this Agreement pursuant to Article VIII, to the properties, books and records of the Company and its Subsidiaries and, during such period, shall (and shall cause each of its Subsidiaries to) furnish promptly to such Representatives all information concerning the business, properties and personnel of the Company and its Subsidiaries as may reasonably be requested in writing, in each case, for any reasonable business purpose related to the consummation of the transactions contemplated by this Agreement;
> Section 6.11 Financing Cooperation.
> (a) The Company shall and shall cause its Subsidiaries to, and shall use its commercially reasonable best efforts to cause each of its Representatives to, at Parent’s sole expense, provide any reasonable cooperation reasonably requested by Parent in writing in connection with (i) the arrangement of the Bank Debt Financing and any other debt financing expressly contemplated by the Bank Debt Commitment Letter...
This argument is saying that Twitter is not holding up it's end of the Merger Agreement by not providing (sufficient/useful) information and not cooperating with debt financing (by not providing information). They give examples like rate limits on developer APIs etc.
So the kernel of the question is: is Twitter providing information to the satisfaction of Merger Agreement?
I don't know the answer to that, but if is "no", would that be grounds for terminating the deal? That seems a bit extreme to me. To me a reasonable ruling would sound something like "Twitter has X days to provide all the information requested and then Musk has to perform the purchase".
Its important to keep in mind that until he actually owns Twitter, the current management needs to still operate with an assumption that he may not end up owning Twitter. If they have reason to believe it would harm Twitter financially to give information to him in terms of him using it to undermine them later, or if it would impact business operations today, then they don't need to give it to him under these agreed upon terms.
More broadly I think its important that theres a clear distinction between pre-merger-agreement information requests and post-merger-agreement information requests. An analogy I've made before is that imagine you have 2 offers for your home which you list at $100k. You receive two offers: one is for $100k with no inspection contingency and one is for $100k _with_ an inspection contingency. All else being equal, you will always take the no inspection contingency. Now imagine one is $100k with no inspection, and the other is $500k with an inspection. Some percentage of people will take the $500k offer because they have _paid a sufficient premium for the future uncertainty of consummating the deal_ as well as _the likelihood of renegotiation if anything comes up_. This is extremely relevant to the Musk/Twitter agreement because Pandoras box has already been opened once the agreement goes public. It would be an unfair negotiation to try and _reopen_ negotiation based on things discovered in a _new round_ of "due diligence" analysis. If you wanted that right, you need to pay for it.
> invalid to speculate.
Then say that you are speculating instead if claiming it as the truth.
This is a legal matter, and often it comes down to which side argues their case better. It isn't code where there is only the factual interpretation as seen by the compiler; law takes into account the fuzzy human interpretations that often frustrate programmers. Ultimately, this contract will be enforced by the courts in whichever side makes a better case.
Note that this may mean that even if Elon is in the wrong by canceling, the court may find in his favor simply due to the potential economic fallout. Sucks, but if law was a cut and dried thing we would have eliminated lawyers long ago.
Do you believe it's not possible to draw up clear contracts with clear meanings? Do you believe that if you just take any contract and pay a lawyer some money, they can argue whatever? In that case, what's the purpose of drawing up a contract at all?
Resolving that ambiguity is an important function of law and I'd go so far as to say the primary function of the court system. I do believe that if you pay a lawyer enough money you can probably find one willing to argue what you want although you may not win.
They posted an opinion, not interpretation... The part before the opinion as simply for context.
Someone else gave their opinion.
If you disagree, then say why.
If you want that evidence, then go get it yourself.
> 1. Information related to Twitter’s process for auditing the inclusion of spam and fake accounts in mDAU.
> 2. Information related to Twitter’s process for identifying and suspending spam and fake accounts.
His principle activity is influencing. The main sticking point of the proposed merger is information on how Twitter polices fake accounts. Nothing suspicious about this at all. Reminds me of the time a wolf was interested in buying my farm, and mainly wanted to know when my dog was chained up and how long the chain was exactly.
Yes [1].
[1] https://www.sec.gov/Archives/edgar/data/0001418091/000119312...
https://www.sec.gov/Archives/edgar/data/1418091/000119312522...
It outlines the fraud allegations:
https://www.sec.gov/Archives/edgar/data/1418091/000110465922...
Either way, I am laughing at all of them. (Yes. Elon also played the fraudster role as well)
What matters is that Elon has a bad time when he goes on Twitter because he is bombarded by bots and spam.
If there were only 3 bots on Twitter, they would all be bombarding Elon. If there were no bots on Twitter, he would still be bombarded by spam.
I guess you can't really use "I'm tired of my personal experience being terrible on Twitter" to raise money to buy Twitter, or to keep your fanboys engaged, or whatever Elon is thinking.
Personally, I think "I'm tired of my personal experience being terrible on Twitter" would have been a very honest way for him to approach the whole matter.
I also think that it is very natural for people to feel a threat or emotion or anger and then pin that on an external actor or actors, when it's something that they feel inside themselves.
what did musk's filing say about that? any complaints?
(It's true some of the many other things that are claimed to be breaches relate to alleged failure to fulfill obligations to provide information that Musk supposedly wanted to determine if other claims that has been made were fraudulent, but that's different than alleging fraud.)
Secondly, the ceo was firing aka asking for resignations from key people, no? That is not maintaining the business, that seems like sabotage.
It says that after, and modified by, the phrase “appears to have”.
Musk’s lawyers are saying that Twitter actually breached the agreement. They are saying it looks like Twitter may have done other bad things, too, but that's not the same as claiming that Twitter actually did the other things.
> Secondly, the ceo was firing aka asking for resignations from key people, no?
The separately call out people being forced out and people resigning. Absent something not in the letter, the former is a much more reasonable, on its face, complaint.
They are claiming breach of contract, and that it looks to them like lying which, if it did happen, might be fraud, but they can't tell, in part because part of the alleged breaches is Twitter not giving them information that might clarify whether the other claims were true or not.
Accusing someone of lying is in effect an accusation of bad faith. An accusation of bad faith is a serious matter, and if you play too freely with it, then you're engaging in bad faith yourself. [1]
The concept of misrepresentation is in a grey area that may or may not have a component of bad faith (see for example the concept of "fraudulent concealment" in courts of equity,[2] the test for which includes a finding of misrepresentation, and note that "fraud" in equity is, confusingly, not at all the same concept as common law fraud), so it's a much more intelligent accusation to make in court unless you have highly probative evidence. [3]
[1] Clean hands doctrine: https://en.wikipedia.org/wiki/Clean_hands
[2] Equity: https://en.wikipedia.org/wiki/Equity_(law)
[3] IANAL
Their central allegation is that they didn't get the information because of Twitter’s refusal to uphold their obligations.
There is a covenant in the contract about running the business between signing and closing.
The claim is breach of contract.
But they've been sending the SEC these same numbers calculated using the same methodology since 2013, right? If they were materially adverse circumstances, you'd imagine that someone would have caught this in the last 9 years...
Twitter’s CEO has addressed this. Musk responded with a poop emoji: https://twitter.com/paraga/status/1526237578843672576?s=20&t...
You also left out an important piece: 5% of their *monetizable* DAU. Not just DAU.
But you're right, Elon's been convincing the public that Twitter has made claims they never actually made.
So Twitter tagged my device with a cookie specifically meant to keep me from viewing users' content. How's that support their mission statement, "To give everyone the power to create and share ideas and information instantly, without barriers"?
It's not in my interest, or that of their users. The only benefit is to their bottom line, and I'd argue tactics like that do more long term damage than good. Certainly doesn't make me want to sign up or log in.
Go choke on Elon's <shit emoji>, Twitter. /rant
Besides, Musk has been complaining about bots for a long time, and has made it clear he doesn't believe the 5% number way before the acquisition. If the 5% number was a sticking point for him, he could have demanded due diligence. He did not demand that, thereby waiving his rights.
How can you identify a "spam account"? It's not possible to definitively determine the intent of someone opening or using a new account.
So the numbers are arguable either way. Musk is using this fact to try to wriggle out of a disastrous impulse buy.
Neither side said bots, but bots _should_ be a subset of "false or spam" accounts. They basically used "our judgement" and give themselves complete discretion. And 5% is a nice round number plucked from nowhere which sounds awesome! Providing proof of that to a Banker or Backer (or Elon or a future Jury) isn't therefore possible or intended. It's marketing spin in an SEC filing.
Do you mean "they should report all bots as part of their false or spam accounts number", or that you believe logically bots are in fact a subset of the number twitter reports, and so twitter's number is bogus if 50% of all accounts are bots?
If it's the latter, you're missing the point of their mDAU marketing metric. It already has all the obvious bots and non active accounts removed. They're saying, what % of advertising revenue turns out to be from bots.
…
>the reason that elon musk can't get out of the deal over the bots thing is not that he "waived due diligence." it's that he SIGNED A BINDING AGREEMENT TO BUY TWITTER, and that agreement does not have any outs for "i think there are too many bots."
- Matt Levine esq of Bloomberg
""" the reason that elon musk can't get out of the deal over the bots thing is not that he "waived due diligence." it's that he SIGNED A BINDING AGREEMENT TO BUY TWITTER, and that agreement does not have any outs for "i think there are too many bots. """
... and ...
""" yes i know that this is a small petty thing. but part of my point is that even if he had demanded extensive due diligence, and done it, and then signed the agreement, we'd be in the same place. the waiver or not of due diligence doesn't matter; what matters is we're past that. """
“My offer was based on Twitter's SEC filings being accurate,”
Willfully filing fraudulent SEC filing is a crime - and if Twitter has been engaging in criminal behavior to artificially increase their value - I would think Musk has a good case.
Ignoring whether this is a legitimate reason to back out of the agreement, Musk hasn't shown that Twitter has been filing fraudulent SEC filings so what does it matter anyway?
From https://www.bloomberg.com/opinion/articles/2022-07-09/elon-s...
Regardless, Musk is making a lot of claims. Let's see if he can provide any reasonable evidence of those claims and make any reasonable arguments that will be accepted in court. There's really no point in speculating anymore. Now we just need to wait to see if a judge is actually buying his arguments.
Musk has _not_ provided any evidence of fraud. I'll wait until he actually does before speculating as to how decisive it will be in any future court proceedings.
[0] https://twitter.com/matt_levine/status/1545151445057536001
It would be possible to enter into a contract through tweets alone. That didn't remotely happen here, though.
Note that today, Twitter is worth $28B. So the agreed deal essentially gives the shareholders $16B in profit.
So a judge might tell Musk he can’t back out and has to buy Twitter for $44B like he said he would. Or it might let him just give the shareholders $16B and not get the company.
Er, not just the internet now
The current price ($32) reflects be probably won't.
I’m telling you, the guy really signed an ironclad contract forcing him to pay $44B to buy Twitter.
Twitter has done nothing to impede the transaction, so any uncertainty (and thus decline in TWTR share price below $54.20) is due to the actions of the buyer, who is… Elon Musk.
Therefore, Elon is responsible for any decline in the share price since the purchase agreement was signed.
https://twitter.com/matt_levine/status/1545151445057536001?s...
In any case, I guess we'll have to see if Musk's financing really gets pulled and if that really means Musk is off the hook.
That falls under my personal definition of "torpedo".
Well... a number of employees left.
>>First, although Twitter has consistently represented in securities filings that “fewer than 5%” of its mDAU are false or spam accounts, based on the information provided by Twitter to date, it appears that Twitter is dramatically understating the proportion of spam and false accounts represented in its mDAU count. Preliminary analysis by Mr. Musk’s advisors of the information provided by Twitter to date causes Mr. Musk to strongly believe that the proportion of false and spam accounts included in the reported mDAU count is wildly higher than 5%.
Look at said SEC filing. It is worded in a way that is impossible to prove fraudulent with the kind of data Musk asked for. He could have proof positive that he is the only human account on Twitter and the Twitter SEC filing would likely not be construed as lying - it very explicitly states that it is a judgment call by the Twitter execs, based on some internal methodology, and that the real number could be higher.
The only way you could prove they lied to the SEC would be if you found emails that say something along the lines of "to the best of our knowledge, 20% of mDAUs are actually bots/spammers, but let's say 5% in our SEC filing".
e.g. elon calling some dude who wounded his pride on twitter, a "pedo"