Elon Musk is trying to back out of his $44 billion agreement to acquire Twitter, according to a filing filed by the Securities and Exchange Commission (SEC) on Friday.
Musk’s lawyers allege that Twitter made “false and misleading” statements during negotiations about the number of monetizable daily active users (mDAUs) on the platform.
in Message To Twitter’s chief legal officer, Vijaya Jade, Musk’s attorney:
Twitter is in breach of the merger agreement because the merger agreement appears to contain materially inaccurate representations…
Twitter has repeatedly released statements in such files regarding the wrong or spam portion of mDAU, including statements that: “We performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the first quarter of 2022 represents less than 5% of our mDAU for the quarter…”
Mr. Musk relied on that representation in the merger agreement (and Twitter’s many public statements regarding false accounts and spam in publicly filed SEC documents) when agreeing to enter into the merger agreement.
Mr. Musk has the right to request cancellation of the merger agreement in the event that these material representations are determined to be false.”
In other words, Musk’s lawyers claim that Twitter is not being honest about the number of its bot members.
After public criticism of the alleged bot problem on Twitter, it might not be surprising to see Musk’s lawyers cite it as a reason to back out of the agreement.
20% of fake/spam accounts, while 4 times what Twitter claims, could be *much* higher.
My offer was based on the accuracy of Twitter’s SEC filings.
Yesterday, the CEO of Twitter publicly refused to show proof of <5%.
This deal cannot go forward until he does.
– Elon Musk (@elonmusk) May 17, 2022
Another reason Musk might have second thoughts is the sharp drop in inventory value. When Musk offered to buy Twitter, he valued it at $54.20 per share. Since then, the value has fallen to $36.81 a share.
Whether the reason is bots or the bottom line, it won’t be easy for Musk to get away with buying Twitter.
what is happening now?
Twitter is committed to closing the deal and says it will take legal action to enforce the agreement.
Twitter Chairman Brett Taylor responded to Musk’s letter
Twitter’s board is committed to closing the transaction at the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware court.
– Brett Taylor (@btaylor) July 8, 2022
If Twitter’s board moves forward with legal action, the onus will be on Musk to prove Twitter’s violation of the agreement.
Did Twitter lie about how many bots it has?
Is this a valid reason for Musk to back off from buying the company?
These are questions for the judge to decide after reviewing the cases submitted by both parties.
One thing we are sure of is that this story is far from over. Expect it to last for many more months if you go to court.
Featured image: mundissima / Shutterstock