On Friday night, Tesla CEO Elon Musk finally made it clear that he had no interest in adding “Twitter owner” to his list of titles. The move took months to prepare. Twitter plans to file a complaint in response.
In a letter to Twitter’s chief legal officer, Vijaya Gadde, filed with the Securities and Exchange Commission, Musk told the social media company he would be terminating the $44 billion acquisition deal he struck in late April . However, it’s not yet clear whether Musk can unilaterally end the deal.
Musk has been fixated on the number of spam accounts on the social network. Citing their proliferation of automated bots, he first claimed Twitter breached its merger agreement At the beginning of June. Musk’s lawyers argue that the billionaire is withdrawing from the agreement because “Twitter is in material breach of several provisions of this agreement, appears to have made false and misleading statements on which Mr. Musk relied when entering into of the merger agreement, and is likely to suffer a material adverse effect from the company.”
Twitter plans to sue Musk in response. Twitter CEO Parag Agrawal retweeted the company’s Chairman of the Board Bret Taylor’s promise of legal action minutes after the news broke, in defiance of the Tesla CEO.
“Twitter’s board of directors is committed to completing the transaction at the price and terms agreed to with Mr. Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Court of Chancery,” Taylor wrote.
In an email to staff on Friday obtained by the edgeSean Edgett, Twitter’s general counsel, told people not to share any comments about the merger on Twitter or Slack.
“As this is an ongoing legal matter, you should refrain from tweeting, releasing or sharing any comments on the merger agreement. We will continue to share information when we can, but please know that we are going to be very limited on what we can share in the meantime,” Edgett wrote.I know these are uncertain times, and we appreciate your patience and continued commitment to the important work we have underway. »
Harvard Law School professor Jesse Fried told Gizmodo in an email Friday that Musk couldn’t “just walk away from the deal” and was likely trying to lower the price of the acquisition.
“He’s obligated to buy Twitter if he has adequate funding, as it appears he does. There are narrow limits,” Fried said. “Given the contract and post- Twitter signature, Musk is highly unlikely to get a Delaware court to give him a “free card out of the merger.” He was presumably informed of this by his lawyers.
The news that Musk is walking away from the acquisition deal follows months of public buyer’s remorse expressed on Twitter itself. The company says automated bots and spam accounts account for just 5% of social network users, a figure Musk believed to be much higher. He requested and received more data on the Twitter user base but ultimately said the information provided was insufficient.
Thursday, the Washington Post reported that the billionaire’s deal to acquire Twitter was in “serious jeopardy” and that Musk had stopped engaging in funding discussions. The outlet cited Musk’s team’s doubts about the data provided on the number of fake accounts and spam bots provided by Twitter.
The back and forth with Musk took its toll on Twitter. The company’s stock price had fallen to $36.10 on Friday, well below the $54.20 it was offering. The company also fired members of its recruiting team on Friday, although the layoffs have hit the wider tech industry as the stock market has fallen in recent months. Musk cited the layoffs in his termination letter along with several high-profile resignations. In June, amid a wave of chaos at Musk, Twitter said it was still committed to getting the deal done and hinted it wasn’t afraid to take legal action. Asked about the Post’s report earlier today, Twitter reiterated its response from June: “We believe this deal is in the best interest of all shareholders. We intend to complete the transaction and enforce the merger agreement.
Musk, Twitter’s largest shareholder, has been behaving like the owner of Twitter for weeks: He answered questions from Twitter employees in a city hallby giving them advice on the products (make Twitter closer to TikTok).
Fried said it was probably just a game for Musk.
“Litigation will be costly for Twitter, and it may agree to lower the price to settle the litigation. That’s probably Musk’s game plan here,” the professor said.
Musk’s lawyers looked in more detail at Twitter’s perceived slights and breaches of contract, the majority of which centered on the Blue Bird company, apparently refusing to provide or providing incomplete information to the billionaire.
The Billionaire’s Accusations are the following:
Spam and fake accounts
Predictably, Musk complained about a lack of information from Twitter regarding spam and fake Twitter accounts. Its attorneys say the social media company failed to provide the following information:
“(1) daily global mDAU data since October 1, 2020; (2) information regarding the sampling population for mDAU, including whether the mDAU population used for spam and fake account auditing is the same mDAU population used for quarterly reporting; (3) the results of each step of the sampling process for each day during the weeks of January 30, 2022 and June 19, 2022; (4) documentation or other guidance provided to Contractor’s agents used for auditing mDAU samples; (5) information regarding Twitter’s ADAP tool user interface and any internal tools used by Subprocessor’s agents; and (6) mDAU audit sample information, including anonymized information identifying the contractors and quality analyst who reviewed each sampled account, the designation given by each contractor and quality analyst, and the status current account of any account labeled “compromised”.
The billionaire said he had not received data on the methodology used by Twitter to suspend spam and fake accounts.
According to the letter, Musk apparently wanted “access to the sample set used and calculations performed” to determine that less than 5% of Twitter’s mDAUs are fake or spam accounts, the company claims. The request included daily mDAU measurements for the last eight quarters. The letter says the social media company provided “some summary data” regarding its mDAU calculations, but not the full daily metrics. In addition, Musk requested documents provided to Twitter’s board of directors on mDAU calculations. Again, he claims to have received incomplete information.
“Preliminary analysis by Mr. Musk’s advisers of the information provided by Twitter to date leads Mr. Musk to firmly believe that the proportion of fake and spam accounts included in the number of mDAUs reported is well over 5%” , indicates the letter.
Documents related to Twitter’s financial condition
Additionally, the billionaire’s lawyers claim he is entitled to certain financial data related to Twitter, including information that aims to help him secure funding for the deal. Musk claimed to have requested a financial model and budget from Twitter for 2022, an updated draft plan or budget, and a “working copy” of the valuation model from Goldman Sachs. He reportedly received only a PDF copy of the final Goldman Sachs board presentation.
Access to APIs and restriction of requests
When Musk received information, his lawyers say it came “with conditions attached.” For example, they claim that initially Musk didn’t have the same access as customers to eight Twitter developer APIs. This was only corrected after explaining the lack of access to the company.
Nevertheless, the APIs reportedly contain a “request limit” that prevents Musk and his team from performing the desired analyzes of the data. The cap was only removed after Musk complained about it twice.
Twitter fired two senior executives, laid off people and froze hiring
Finally, Musk’s attorneys claim that Twitter was obligated to “preserve the material components of its current business organization substantially intact,” which they claim it failed to do. Violations in this area began when the Blue Bird app was launched Kayvon Beykpour and Bruce Falckits chief product officer and chief revenue officer, respectively, in May.
The letter also cites Twitter laying off 30% of its talent acquisition team last Thursday and its hiring freeze. As if that weren’t enough, Musk is also supposedly angry that Twitter didn’t arrest its chief data scientist; the vice-president of the Twitter service; and a vice president of product management for health, conversation and growth from leaving.
“The company has not received Parent’s consent for changes in the conduct of its business,” Musk’s attorneys wrote.
Update 7/9/2022, 6:26 a.m. ET: This post has been updated with information about Edgett’s email to staff.