Elon Muskās deal to buy Twitter is in serious jeopardy, three people familiar with the matter say, as Muskās camp concluded that Twitterās figures on spam accounts are not verifiable.
Muskās team has stopped engaging in certain discussions around funding for the $44 billion deal, including with a party named as a likely backer, one of the people said. The people spoke on the condition of anonymity because of the sensitivity of the ongoing discussions.
Talks with investors have cooled in recent weeks as Muskās camp has raised doubts about the recent data āfire hoseā ā a trove of data sold to corporate customers ā they received from Twitter. Muskās teamās doubts about the spam figures signal they believe they do not have enough information to evaluate Twitterās prospects as a business, the people said.
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Twitter said that every three months, it takes a sample of the āMonetizable Average Daily Users,ā the base of users which the company feels comfortable charging advertisers to reach. It analyzes that sample by hand to determine whether they are fake or not, including looking at information such as IP addresses that it canāt share publicly. It said it has always been comfortable that the total comes under the 5 percent threshold.
Print publications have long been independently audited by the Audit Bureau of Circulations (ABC), now renamed the Alliance for Audited Media, a non-profit founded in 1914 by the Association of National Advertisers in the U.S. to verify circulation claims made by publishers. Twitter, instead, determines what it āfeels comfortable charging advertisersā by an opaque, in-house process involving information āit canāt share publiclyā. Nothing suspicious going on here, Iām sure.
Certainly, I am not the only Twitter user who has observed the same āpromotedā tweet in Chinese being shown three of four times in five minutes browsing of their Twitter timeline, each of which they doubtless āfeel comfortableā charging the sucker paying to promote it.
If we still operated under the rule of law (we obviously donāt), all the platforms would be subject to the same public accommodations non-discrimination rules which apply to most businesses which serve the general public. i.e. there ought to be a significant burden on them by way of at least a presumption that excluding someone because of their political viewpoint constitutes unlawful discrimination.
On July 8, 2022, the Reporting Personās advisors sent a letter to Twitter (on the Reporting Personās behalf) formally notifying Twitter that the Reporting Person is terminating their merger agreement. The foregoing description of the Reporting Personās letter is qualified in its entirety by reference to the full text of the letter, a copy of which is attached hereto as Exhibit P and incorporated herein by reference.
We refer to (i) the Agreement and Plan of Merger by and among X Holdings I, Inc., X Holdings II, Inc. and Twitter, Inc. dated as of April 25, 2022 (the āMerger Agreementā) and (ii) our letter to you dated as of June 6, 2022 (the āJune 6 Letterā). As further described below, Mr. Musk is terminating the Merger Agreement because Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect (as that term is defined in the Merger Agreement).
While Section 6.4 of the Merger Agreement requires Twitter to provide Mr. Musk and his advisors all data and information that Mr. Musk requests āfor any reasonable business purpose related to the consummation of the transaction,ā Twitter has not complied with its contractual obligations. For nearly two months, Mr. Musk has sought the data and information necessary to āmake an independent assessment of the prevalence of fake or spam accounts on Twitterās platformā (our letter to you dated May 25, 2022 (the āMay 25 Letterā)). This information is fundamental to Twitterās business and financial performance and is necessary to consummate the transactions contemplated by the Merger Agreement because it is needed to ensure Twitterās satisfaction of the conditions to closing, to facilitate Mr. Muskās financing and financial planning for the transaction, and to engage in transition planning for the business. Twitter has failed or refused to provide this information. Sometimes Twitter has ignored Mr. Muskās requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information.
The letter provides many details of breaches on the part of Twitter and concludes,
Accordingly, for all of these reasons, Mr. Musk hereby exercises X Holdings I, Inc.ās right to terminate the Merger Agreement and abandon the transaction contemplated thereby, and this letter constitutes formal notice of X Holding I, Inc.ās termination of the Merger Agreement pursuant to Section 8.1(d)(i) thereof.
Who saw that coming, eh? A bunch of Machiavellian leftists lied about the company and were doing everything they could to scuttle the deal.
This is the best of all possible outcomes: the sleazeballs at Twitter were exposed for what they are and Musk need not dirty his hands mucking about with them in the process of trying to fix the culture, which effort would surely have failed.
The timing of the announcement is interesting for a Friday the week of July 4th. Makes one wonder what is Muskās next play ā my take is heās bracing for fighting this in court.
I am fuzzy on whether itās possible to settle on a lower price acquisition. Twitterās board to date has been taken to town all over the place by Musk.
If and when this is litigated in the Delaware Court of Chancery, Muskās lawyers will almost certainly use the discovery process to compel disclosure of internal Twitter documents and information relevant to each of the āmaterial breachā items in the bill of particulars from Muskās termination letter. This will open the door to securities fraud investigations, shareholder suits based upon fraudulent claims, and SEC investigation of the company and its officers and directors.
I am beginning to suspect that one of the reasons Twitterās board and management were so quick to accept Muskās original offer and so silent afterward (have you noticed that CEO āBlue Check Apuā Agrawal has said almost nothing since this started to blow up) is that they realised their best hope was concluding the buy-out before the extent of their fraud was discovered. Musk has now maneuvered them into a position where it is either inevitable or theyāll have to sell at a bargain basement price to avoid the consequences. With such uncertainty hanging over the company, the odds of a āwhite knightā acquirer stepping up to buy the company at this point are negligible.
Given the pace at which the dysfunctional US legal system works, my guess is that Musk will be standing on Mars before the Twitter legal case grinds to an end.
And on top of this, he negotiated an unusually low termination fee and justifiably unloaded a whole bunch of Tesla shares at an opportune moment - in order to pay for it. I havenāt followed what happened to his initial Twitter stock position.
Question for future MBA cases - how much of this was a plan vs. Texas sharpshooter fallacy helped by the boardās actions?
Was there an alternate course of action the board should have taken given the situation they were sitting on?
It now looks like the smart move was to leave the board prior to Muskās initial attack. Jack Dorsey still looks fairly credible despite most likely being at least aware if not directly implicated in the ābot strategyā.
My take is that if price drops significantly, a āwhite knightā may be motivated by the desire to prevent Musk from āgettingā Twitter rather than economical factors. I recall earlier posts in this thread mentioning that a ālast minute pleaā to Google fell on deaf ears with the speculation that it was too expensive to counter Muskās offer.
That calculation may change if a rich knight - white, brown, pink, or any color of the rainbow - makes an offer in the range of 1/10 - 1/8 of Muskās initial bid.
An obvious White Knight would be WeChat. So what if WeChat is Chinese-owned, which means they are run by the Chinese government? It is reasonably argued that Twitter today is run by the Democrat Party, which in turn is run by the Chinese government. So there would functionally be no change. New Twitter could get with the financialized system and offshore all their US jobs to WeChat in China, bringing a smile to Nancy Pelosiās face.
If we are happy to get our steel, electronics, and pharmaceuticals from China, why not cut out the DC middleman and get our propaganda direct from there too?
Chinese companies like to buy out western companies in two circumstances:
Buying a name of a bankrupt entity when all they want is the name. That will occur only if no western company would buy it for more in order to continue the business.
Buying a dying entity to get the name and technology and then compete internationally. This can occur because CN will depress the companyās value by restricting it from operating in CN. But once acquired by a CN company, it can freely compete internationally. Consider examples of Volvo and many industrial automation companies:
That is assuming the objective of the purchaser is to make money running a genuine business. Suppose Twitter is assessed not to be a genuine business, but a very effective propaganda/influencer weapon? Then the purchaser (through whatever front men are required) would be a government entity or a Soros type.
I wish you were right, but look to history. Bill Clinton took time out from his other activities to permit Loral to sell expensively-developed US rocket guidance technology to China. Officially, this was to aid the Chinese space program ā but what some would call a rocket, others might call a missile.
Since a conscious US President was prepared to sell technology with that kind of existential risk to the Chinese (for whatever quid pro quo was involved), it is hard to imagine that his barely-conscious successor would have any problems with giving China control over Twitter. Just my cynical view, of course.
Here is the response by Twitterās lawyers to Muskās letter terminating the Twitter acquisition, as filed with SEC in a Form 8-K filing on 2022-07-11 [PDF].
The letter does not address the individual breaches alleged in the Musk letter, but simply states:
Mr. Muskās and the other Musk Partiesā purported termination is invalid and wrongful, and it constitutes a repudiation of their obligations under the Agreement. Contrary to the assertions in your letter, Twitter has breached none of its obligations under the Agreement, and Twitter has not suffered and is not likely to suffer a Company Material Adverse Effect. The purported termination is invalid for the independent reason that Mr. Musk and the other Musk Parties have knowingly, intentionally, willfully, and materially breached the Agreement, including but not limited to Sections 6.3, 6.8, and 6.10 thereof. The Agreement is not terminated, the Bank Debt Commitment Letter and the Equity Commitment Letter remain in effect, and Twitter demands that Mr. Musk and the other Musk Parties comply with their obligations under the Agreement, including their obligations to use their respective reasonable best efforts to consummate and make effective the transactions contemplated by the Agreementā¦
In an accompanying press release, also included in the 8-K, the Twitter board of directors said:
We are committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plan to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.
