Twitter Still Wants Musk’s Money
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Plus, after seeing the lawsuit filed yesterday, I think they really want Musk to have consequences for his actions. He has gotten away with making a mockery of the financial markets (remember funding secured?) for way too long. Set a precedent, make him pay!
As someone unfamiliar, for what exactly? I've tried to keep up, but I've read many contradictory things.
Elon is claiming this. Twitter is denying it. It will be decided by a judge in a few years.
Given Twitter's ethics I already have a prediction for the outcome but ultimately it's for the judge in the end.
Yes, and when negotiating the contract with Twitter, Musk effectively waived _all_ of them.
And in any event, this won’t take a couple years to resolve. Delaware chancery court decides issues like these on very, very quick timeframes. That’s why so many corporations are formed there - it’s not a tax dodge or a way to hide ownership, like you sometimes see suggested in the media. It’s because there’s a robust body of corporate common law, well developed corporate statutes and an judiciary that’s world class in adjudicating commercial disputes.
Given Musk’s staggering bad faith at all stages of this transaction, it’s going to be interesting to see how that plays into the chancellor’s ruling (assuming it doesn’t settle beforehand, but if I’m Twitter, I’m taking my chances at trial unless and until there’s a ten-figure settlement on the table).
If you ask me, the real problem for the social networks is click fraud and this is just the first cut.
Furthermore, now that Twitter has filed the law suit, the defendant (Musk) gets to ask for discovery to defend himself. Twitter is going to have to turn over the data anyway.
But Twitter already did this, at least in one part.
From the lawsuit:
> On or about June 9, 2022, Musk’s counsel indicated that granting access to 30 days’ worth of historical firehose data would satisfy Musk’s request for the firehose data. So, on June 15, the company gave Musk’s team secure access to that raw data — about 49 tebibytes’ worth. It did so even though the merger agreement did not require the sharing of this information.
“The numbers of active users and timeline views presented in this Annual Report on Form 10-K are based on internal company data. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement across our large user base around the world. For example, there are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that false or spam accounts represented less than 5% of our MAUs as of December 31, 2014. In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated.”
The case isn’t a slam dunk only because public company merger agreements aren’t normally signed on a whim and/or for the lulz. Even here, where there’s a very clear specific performance obligation, Delaware chancellors normally don’t love enforcing specific performance (though they absolutely will, especially in the case of a buyer who’s obviously trying to avoid its contractual obligations based on a pretext).
The real tension here comes from the cap on damages, the chance that Musk blows up the committed debt financing, and the quantum of damages actually suffered by Twitter shareholders if the deal doesn’t close. Those are the actually interesting issues that will get hashed out in court - not some baseless claims about bots that could have and should have been diligenced by the buyer prior to signing a binding $44 billion acquisition agreement.
Sure, but the fundamental point is that the 5% figure is calculated after they have id'ed all the "bots" that they can from the denominator.
EM has been representing 5% as the percentage of spam relative to everything on Twitter. If that's how you interpret it, it sounds unbelievable.
But it's not what they reported to the SEC at all. They are saying that after every bot is eliminated from their count of legit users via automated methods, manual sampling suggests 5% false negatives in the remainder.
I don't know what EM is up to or what the end game is, but he's clearly playing to members of the public who can be misdirected.
If he really is playing 7-dimension chess, then it suggests that he is building political cover for something - perhaps something outrageous that will happen in court.
The confusion is real, but it's entirely due to EM's "fake news" campaign.
The core of EM's PR campaign against Twitter has been to represent the denominator of the 5% figure as all "Twitterers" rather than mDAUs.
This may work on any member of the public who is sympathetic, conspiratorial minded, and not interested in details.
But do you think it will get him anything in court?
I read Twitter's complaint, and I will say they did not seem to be laser focused on the question of whether there is an obvious contradiction between Twitter being 90% bots and the 5% figure in SEC filings.
If I were their lawyers, I would emphasize that there is no contradiction at all because the latter is a percentage of mDAUs...but apparently in their judgement it's not a particularly essential part of the complaint.
If Musk successfully backs out and/or legally wins over Twitter, these would torpedo the company's stock valuation & public trust, mostly over spam & bots. Twitter revenues aren't spectacular even though they are decently okay in social media ops. Any future buyer will keep this on record as a bargaining clause to drive down the price.
With the deal falling apart, stocks most likely will nosedive significantly, if history shows us anything.
This isn't about only money - but survival & reputation.
When $TSLA went south, he seems to have realized Twitter purchase was bad idea & he would lose both ways - by reduced Tesla marketcap & buying Twitter at $54.20 per share (in an infantile attempt to put 420 meme Easter egg) for $44B. And he would have to commit more of his shares given the falling stock situation. If he manages to buy Twitter, the growth isn't going to recover his costs for a very long time (that economics merits a separate HN thread).
He announced something on a whim, then the 'correction' happened as a reality check, and he is throwing every fuss as a teenager high on sugar rush to not go ahead although he is legally obliged to.
Sorry, I'm not sure I follow. Are you saying that everyone realized twitter was not worth that much? Or, is it that Musk caused the stock to fall, somewhat artificially, because his disinterest at $44B is being (incorrectly?) perceived as "he's not interested because the company is not worth $44B" rather than "he's not interested because <other>"?
If Whatsapp was valued $19B few years ago, Twitter has a much higher internet footprint. Plus it serves ads unlike Whatsapp. I would bet Twitter valuation in $45±5B is a decent number in 2022. Problem is Musk doesn't want to cough up that money even though he's talked big - and/or borrow against $TSLA which would make him give up more shares than he imagined. The correction is his self-corrective step. The realization has come tad late, after his public song & dance about how he wants to "buy & unlock the potential of Twitter".
You don't drum up investor expectations, then publicly trash & diss them questioning their credibility. That's the role of due diligence. Companies negotiate, go over finances & relevant details in diligence check - and then talk to media (or not if you aren't happy to go ahead).
Musk basically has broken all norms: He promised loftily he'd buy, even went on a TED-styled talk show event where he unequivocally told how interested he is. $TSLA dips over concerns, market trends downwards - that gets our infantile free-speech champion to make increasingly harder requests to Aggrawal & co., before he wants to proceed further. When Twitter cannot reasonably fulfill his near-impossible requests, he claims in lay speak "Material Adverse effect", which implies he is being forced to buy from Twitter when the latter knows it is false/lossmaking bargain & shifting the onus of this drama to Twitter board.
If you're to pick the details of the story, it makes you wonder whether its pure luck that a fickle man like Musk is owning two superb engineering companies or has he hoodwinked everyone to think like that. But I feel he tries too hard to be something between Steve Jobs & Tony Stark
To characterize this as 'Twitter' is a bit misleading because we think of it as a corporate financial operations decision.
This is an 'owner' thing.