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Musk already secured financing, and most of the recent financial engineering he was doing was in the service of minimizing his own exposure (ie, the amount of TSLA he'd need to sell to cover his end of the deal). His lenders couldn't "independently verify" the mDAU, because he waived diligence --- he was entitled to information as a contractual technicality, but he was not entitled to condition the deal based on anything contained in that information, short of a "material adverse effect", which is in practice an impossible bar to clear.

I will be very surprised that Twitter's position was less than "you can have anything you want", precisely to avoid any complaint of non-cooperation.

I do agree that the agreement's debt financing provisions may provide Musk an out -- "I wanted to close, but I couldn't get debt b/c you wouldn't cooperate".

I'm a little surprised that Twitter agreed to any sort of financing provision, precisely because it seems to allow Musk to screw up his debt raising and then point to that as an out.

But that is not a complaint in the letter, and becomes an argument about what lenders require for debt financing. Musk will have to show that lenders cared about this, and Twitter will have discovery to find evidence they didn't.

Twitter is demanding "specific performance" (i.e. complete the transaction) which is unrealistic given those financing provisions. No court can force all the other parties to close. No financing, no transaction.

He has the financing. He secured ~1/3rd of the funds based on committed LBO debt, ~1/3rd in margin loans against TSLA, and ~1/3rd in personal equity. Since then, he's been working to minimize the his personal exposure, but he can't just pretend not to own the TSLA stock he's borrowing against and selling to close the deal.

Financing has strings. I’m sure his partners want to make sure the mDAU is accurate as well. The entire value of Twitter depends on it.

They can't want that, because it was a term Musk explicitly waived, publicly and notoriously, before he attempted to finance the deal. It was newsworthy, and well covered, that Musk secured the 13Bn of LBO debt in the first place.

What the media says (including musk) and what the term sheet says are two different things. If he mentioned mDAU could be fraudulent to anyone involved, they would be interested to hear what he had to say about it. I believe though that this is a move to reduce the risk and monies he has to pay to try to get a better deal ($30b perhaps?)

> they would be interested to hear what he had to say about it.

They can be interested all they want, doesn't mean they can back out of a deal unless they can demonstrate fraud or gross negligence on behalf of Twitter.

They can't just demonstrate "fraud" or "gross negligence". They have to demonstrate a "material adverse effect", which, as Matt Levine shorthands it, is something on the order of a 40% drop in profitability --- not the stock price, but the fundamentals of the company. Not happening.

What if 40% of the percentage of users that twitter proposes are real people are actually bots? Wouldn't that qualify as material adverse effect?

Propably not if those users can, and are, monetized.

> Wouldn't that qualify as material adverse effect?

Probably not. There has been one MAC finding in the history of MACs. It was a trifecta of fraud, management throwing in the towel the moment the merger was agreed and a massive revenue drop.

Musk’s only hope is to get his banks to pull financing. That’s going to be tough.

Would that even work, though? It’s not like he can’t afford it; his money is just tied up in TSLA. Presumably the court can force him to liquidate his shares if his lenders somehow back out.

No, I the two conditions other than a materially adverse effect that lets Musk back out are if his debt financing falls through or if the government stops it.

So the financiers do back out, then what? Twitter sues them for the full amount, and both parties end up settling for X% of the full amount?

X=100

> If he mentioned mDAU could be fraudulent to anyone involved

One problem for Musk is he's been casting doubt on the bot numbers publicly, even before the deal. One of he's stated reasons for the deal was to deal with spam bots. Twitter has also reported basically the same 5% number in it's filings for years. If it really was a sticking point for Musk he should've done his due diligence before committing to to buy Twitter.

Well twitter is a cesspool of bots, mostly international actors, so I don't see how material facts are a problem.

No, it doesn’t. The entire value of Twitter depends on their entire monetization. That comes from revenue per mDAU, not just mDAU.

Why should a disinterested, objective financier care if $1 billion dollars of revenue came with a real figure of 20% spambots rather than the estimated 5%? That just means true revenue per mDAU is something like 18% better than estimated.

If the real number is 50%, then true revenue per user is about double. If the real number is actually 99%, true revenue per user is about 20x. There would also probably be some very quick wins for improving the quality of the service.

There may be an argument for needing accurate mDAU figures - but Musk isn’t making one, the financiers didn’t ask for them, the market has NEVER had accurate figures for social media anyway, and there’s no legal standard for it.

It’s not a good thing to have more bots at the same revenue because you aren’t just buying a companies past performance but their future performance. If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much.

> If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much.

That’s if you assume that advertisers have no idea what the result of ad impressions are. (Which is an argument I’m sympathetic to, but isn’t flattering to the ad industry.) If they do have an idea of the results of ad impressions, it would mean that their ads are actually proportionally more effective than they thought, since their revenue brought in by ads has stayed the same but with fewer impressions.

I believe the agreement would require him to finance the deal directly

From the proxy agreement

> cause the Equity Investor [Musk] to fund the Equity Financing, or to enforce the Equity Investor's obligation to fund the Equity Financing directly, and to consummate the Closing.

I'm less certain of that, because the structure of the financing was worked into the deal, as I remember (or at least remember reading about).

I think Twitter is working their way towards suing for damages.

Sure you probably can't force the transaction to complete but you can sue for it and when the other parry demonstartes that they're not willing to complete a transaction they committed then you start suing for damages.

Specific performance would apply to Musk as purchaser, not hypothetical lenders that aren’t party to the agreement. If he can’t find debt, then he would presumably have to liquidate more Tesla stock to pay the full price.

He's already found the debt. His banks agreed to margin and twitter leveraged loans before the deal was even signed.

So if Twitter wins Musk has to go through with his margin loans on Tesla stock. Ehich, at the current state of things, exposes to quite some risk of loosing tge ability to back up the loans with Tesla stock if share prices drop under a certain level. Maybe he just realized that risk and that's why he wants out.

Musk doesn't have to use his Tesla margin loan, and he's already claimed he wasn't going to.

He has to get the money somehow, but he could just sell enough SpaceX if he felt like it.

I think 6.10f leaves him in trouble. No financing, yes transaction.

It would be extremely hard to prove that Elon Musk, the richest man in the world who secured financing for the largest LBO ever in a week, was unable to secure financing because of a technicality in user data which played a key role in his stated rationale for the purchase. Unfortunately for Musk (lmao) and every Twitter employee (my heart actually goes out to them, with the current job market they’re in hell right now), I don’t think there’s any way out of this deal, especially when you look at past precedent like the LVMH-Tiffany’s and Simon-Taubman deals.

I would be surprised if not all lenders / investors did not ask for such data. Especially, after the first tweets from Musk.

Musk did go around knocking on lots of doors to get money and I am not sure if he actually managed to get enough funds; I don't think personally it is a good deal without some internal fundamental data to prove otherwise.

Of course, I am puzzled also that Twitter gave him a smidge of a way out.

> I will be very surprised that Twitter's position was less than "you can have anything you want", precisely to avoid any complaint of non-cooperation.

Be very surprised, they capped the firehouse. From the filing:

> Additionally, those APIs contained an artificial “cap” on the number of queries that Mr. Musk and his team can run regardless of the rate limit—an issue that initially prevented Mr. Musk and his advisors from completing an analysis of the data in any reasonable period of time. Mr. Musk raised this issue as soon as he became aware of it, in the first paragraph of the June 29 Letter: “we have just been informed by our data experts that Twitter has placed an artificial cap on the number of searches our experts can perform with this data, which is now preventing Mr. Musk and his team from doing their analysis.” That cap was not removed until July 6, after Mr. Musk demanded its removal for a second time.

> Twitter is supposedly not providing the data

Not really. Reading the letter it sounds more like Musk has started to make more specific requests, likely in the hopes of them not being able to service them. For example, he claims in the letter that he requested daily mDAU numbers for the previous 8 quarters (i.e. 2 years) and they only gave him rolled-up numbers.

I find it completely believable that they may not have a daily breakdown for 8 quarters, and so they can't provide the information requested.

Stats get increasingly expensive and useless to store, but one would think mDAU would be one tagged for high precision long retention storage.

I mean, no? Why on earth would I want Thursday the twenty thirds mDAU from a year and a half ago? If it's not bringing value, it's costing money, and it's unlikely to provide value, so why keep it?

Because sometimes it costs more money to discard some data than it does to simply keep it.

When I was in mobile gaming we stored that data for way longer.... Do you really think twitter is throwing away user activity data?

I find it very hard to believe that they don't have this information graphed on a dashboard somewhere.

Depends on whether there was UII in the underlying dataset. It's probable that Twitter kept the mDAU numbers and probably shared them, and Elon's people asked for underlying data that aggregates up to that metric, so they can scrutinize the methodology.

However, saving user identifiable information > 90d is a challenge these days - you have to anonymize it, which defeats Musk's purported goal. (And it might be illegal to share that data w/ a 3rd party.)

When your enterprise value is predicated on user activity stats, you keep your user activity stats.

Because there’s no such thing as a regular Thursday at Twitter scale. Any number of things could have happened that Thursday or around it, major world event, Thanksgiving, last day of Ramadan or whatever. And you might have a valid data question regarding these events.

Heck, not only “what happens on Twitter each day of the week” is a very valid data question, but even by the hour.

Your right twitter might just be incompetent and not keep that data, but this would be one of the most basic forms of data you need for analysis when your entire revenue model relies on that statistic.

If you've ever run analytics at even a mid-sized company (let alone large, where it's even more critical to keep this stuff), getting daily mDAU is trivial and you'd have to have a grossly irresponsible data policy to be unable to pull that.

Nobody worth their wage drops data that aggressively unless they are compelled by law.

I dont have enough experience in analytics to know what data points would be full fidelity vs rollup. I'm just stating that theres no guarantee they even have the data to service his requests, and I dont believe they were under any existing obligation to maintain it before Musk got involved.

"For any reasonable business purpose" is different from 'any information you think is reasonable'. I would presume (guess) that Musk kept asking for more info until he found a point where Twitter stopped responding just so he could argue this clause was broken.

> I have little doubt anyone lending that kind of money would require the buyer to independently verify the mDAU.

Nope. Musk's financing is not conditional on that.

> Twitter is supposedly not providing the data

Didn't he get access to the firehose, which is, AFAIK, -ALL- the data? (not the 50GB he tweeted about but supposedly a 2TB/day stream?)

IIRC "the firehose" is around 10%

No, you're thinking of the "decahose." The "Firehose" is the whole thing.

https://developer.twitter.com/en/docs/twitter-api/enterprise...

> The Decahose delivers a 10% random sample of the realtime Twitter Firehose through a streaming connection.

Shouldn’t it be called the Decihose, then? The name is confusing.

The firehose is all the posts.

It's not all the views. And 'daily active users' are mainly viewing, not posting.

Which makes me wonder why the argument about 'the firehose' and 'bots' matters.

Perhaps because it's not actually about the bots, it's about buyer's remorse and trying to get out of the transaction via some excuse.

But why would the analysis care about bots that are viewing? They aren't creating disinformation by viewing (maybe by "liking" though). Bots-as-followers are benign. The "bot problem" is bots being used to post disinfo at scale to cram the entire space with propaganda, that is: to quote Steve Banon "flood the zone with shit". Which is what bots and troll farms have done successfully over the past 7 years.

> But why would the analysis care about bots that are viewing?

Because the business issue is about advertising reach. Bots aren't real advertising targets.

Engagement signals are what drive ‘the algorithm’.

Bots that create fake engagement signals (fake clicks, fake media views, fake DM engagement, as well as fake replies and likes) can manipulate what content gets promoted onto real users’ feeds.

From a business point of view, the problem is that if people can manipulate and promote messages on Twitter by using fake engagement, they are not paying Twitter to promote tweets. As well, I guess, as undermining regular users’ confidence that the things that show up in ‘trending topics’ really are ‘trending’.

But bots posting propaganda - if they’re any good at it - might, weirdly be a good thing for Twitter’s numbers, because they create controversial posts that drive engagement into which Twitter can sell advertising.

Looking at the firehose tells you very little about any of that though. There could be a million bots who post lorem ipsum tweets at a rate of hundreds a second and they would all show up in the firehose, but if twitter’s algorithm means none of those tweets are ever shown to a human, does it matter?

Musk’s whole schtick with the bot numbers has just been a thorough demonstration that he has barely even thought about Twitter’s business or what a social network even is.

It does have something to do with accuracy, because further down the page the letter explicitly calls out the SEC filings and the 5% number and the fact that it was a rep and that there is an MAE.

The letter is throwing several pieces of shit against the wall and seeing which will stick.