Elon Musk wants to end Twitter deal, Twitter will sue

Image for article titled It's Happening: Elon Is Killing the Twitter Deal, and Twitter Is Suing.

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Finally, on Friday night, Tesla CEO Elon Musk made it absolutely clear that he has no interest in including “owners of Twitter” in his track listing. The move was months in the making. Twitter plans to sue.

in one Letter Speaking to Twitter’s Chief Legal Officer Vijaya Gadde on a filing with the Securities and Exchange Commission, Musk told the social media company that he was exiting the $44 billion acquisition deal he made in late April. However, it is not yet clear whether Musk can unilaterally end the agreement.

Musk has become fixated on the number of spam accounts on the social network. Citing their proliferation of automated bots, he said first claimed that Twitter violated its merger agreement At the beginning of June. Musk’s attorneys argue that the billionaire is exiting the agreement because “Twitter is in material breach of several terms of this agreement, appears to have made, and is likely to have made, false and misleading statements on which Mr Musk relied in entering into the merger agreement.” suffer a material adverse impact on the business.”

Twitter then plans to sue Musk. Twitter CEO Parag Agrawal retweeted the promise made by company CEO Bret Taylor minutes after the news broke, despite the Tesla CEO.

“Twitter’s board of directors is committed to completing the transaction at the price and terms agreed 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 received from the edgeTwitter general counsel Sean Edgett urged people not to comment on the merger on Twitter or Slack.

“Given that this is an ongoing legal matter, you should refrain from tweeting, silence or sharing any comments about the merger agreement. We will continue to share information when we are able to, but please note that in the meantime we will be very limited in what we can share,” Edgett wrote. “I know this is an uncertain time 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 “can’t just walk away from the deal” and is likely trying to lower the price of the acquisition.

“He’s committed to buying Twitter when it appears it has adequate funding. There are bottlenecks,” Fried said. “Given the contract and Twitter’s behavior after signing, it is highly unlikely that Musk will get a Delaware court to issue him an ‘exit card.’ His lawyers probably told him that.”

The news that Musk is exiting the acquisition agreement follows months of public buyer regret, which was expressed on Twitter itself. The company says automated bots and spam accounts make up just 5% of the social network’s users, a number Musk thought was much higher. He requested and received more data about Twitter’s user base but ultimately said the information provided was insufficient.

On Thursday the Washington Post reported that the billionaire’s Twitter acquisition deal was “seriously in jeopardy” and that Musk had stopped engaging in funding talks. The outlet cited doubts from Musk’s team about the data provided to it by Twitter on the number of fake accounts and spam bots.

The back and forth with Musk has had a detrimental effect on Twitter. The company’s share price had fallen to $36.10 on Friday, well below the $54.20 it had offered. The enterprise also fired members of its recruiting team on Friday, although layoffs have hit the tech industry in a big way as the stock market has plummeted in recent months. Musk cited the layoffs in his resignation letter, as well as several high-profile resignations. In June, amid a spate of Musk mayhem, Twitter said it was still determined to complete the deal and indicated it wasn’t afraid to take legal action. When asked about the Post’s report earlier this morning, Twitter repeated its June response: “We believe this agreement is in the best interests of all shareholders. We intend to complete the transaction and enforce the merger agreement.”

Musk, Twitter’s largest shareholder, has been behaving like the Twitter owner for weeks: He takes questions from Twitter employees city ​​hallgave them product advice (Make Twitter more like TikTok).

Fried said it’s probably all just a game for Musk.

“Litigation will be costly for Twitter, and it may agree to lower the price to resolve the litigation. That’s probably Musk’s game plan here,” the professor said.

Musk’s lawyers delved into more details of Twitter’s perceived insults and breaches of contract, most of which focused on the blue-bird company’s apparent refusal to provide the billionaire with incomplete information.

The billionaire’s accusations are as follows:

Spam and fake accounts

As might be expected, Musk complained about a lack of information from Twitter regarding Twitter’s spam and fake accounts. His attorneys state that the social media company failed to provide:

“(1) daily global mDAU data since October 1, 2020; (2) information on the sample population for mDAU, including whether the mDAU population used for spam and fake account testing is the same mDAU population used for quarterly reporting; (3) results of each step of the sampling procedure for each day in the weeks ending January 30, 2022 and June 19, 2022; (4) documentation or other guidance provided to contractors used for mDAU Sample testing; (5) Information about the user interface of Twitter’s ADAP tool and any internal tools used by the contractual partners; and (6) mDAU audit sample information, including anonymized information identifying the contractor agents and quality analysts who reviewed each sample account, the designation assigned by each contractor agent and quality analyst, and the current status of any accounts flagged as “compromised.”

The billionaire said he didn’t receive any data on the method Twitter uses to ban spam and fake accounts.

According to the letter, Musk apparently wanted “access to the set of samples used and calculations performed” to determine that less than 5% of Twitter’s mDAUs are fake or spam accounts, which the company claims. The query included daily measurements of mDAUs for the last eight quarters. The letter states that the social media company has provided “certain summary data” on its mDAU calculations, but not the full daily measures. In addition, Musk requested materials on the calculations of mDAUs, which were made available to Twitter’s board of directors. Again he claims he received incomplete information.

“A preliminary analysis by Mr. Musk’s advisors of the information provided by Twitter leads Mr. Musk to strongly believe that the percentage of fake and spam accounts included in the reported mDAU count is well over 5% “, says the letter.

Materials related to Twitter’s financial condition

In addition, the billionaire’s lawyers allege that he is entitled to certain Twitter-related financial data, including information designed to help him secure funding for the deal. Musk has reportedly asked for a Twitter financial model and budget for 2022, an updated draft plan or budget, and a “working copy” of Goldman Sachs’ valuation model. He was reportedly only given a PDF copy of Goldman Sachs’ most recent board presentation.

Access to APIs and query limitation

When information was provided to Musk, his attorneys allege that it came with “conditions attached.” For example, they claim that Musk was not originally given the same access to eight Twitter developer APIs that customers were granted. This was only fixed after explaining the lack of access to the company.

Still, the APIs reportedly include a “query cap” that prevents Musk and his team from performing the analytics they want on the data. The cap was only removed after Musk complained about it twice.

Twitter fired two senior executives, laid off employees and froze hiring

Finally, Musk’s attorneys note that Twitter was obligated to “keep the essential parts of its current business organization substantially intact,” which they say it has not done. The violations in this area started with the triggering of the Blue Bird app Kayvon Beykpour and Bruce Falckits General Manager of Product and General Manager of Revenue, respectively, in May.

The letter also cites that Twitter laid off 30% of its talent acquisition team and lifted the hiring freeze last Thursday. As if that wasn’t enough, Musk is also reportedly pissed that Twitter didn’t stop its head of data science; the vice president of the Twitter service; and a vice president of product management for post-departure health, conversation and growth.

“The company has not obtained parent company approval for changes in the conduct of its business,” Musk’s attorneys wrote.

Update 7/9/2022 6:26 am ET: This post has been updated with information about Edgett’s email to employees.