Elon Musk Officially Seeks to Terminate Twitter Takeover Deal

It appeared inevitable, and now, Elon Musk has formally filed a movement with the SEC to terminate his $44 billion takeover of Twitter, based mostly on Twitter’s failure to offer correct data on the variety of pretend accounts on its platform.

In a letter filed on behalf of Musk and his funding companions at Morgan Stanley, Musk is looking for to cancel the acquisition resulting from a ‘materials breach of a number of provisions’ of the unique merger settlement.

As per the submitting:

‘[Twitter] seems to have made false and deceptive representations upon which Mr. Musk relied when coming into into the Merger Settlement, and is prone to endure a Firm Materials Hostile Impact (as that time period is outlined within the Merger Settlement).”

Musk’s staff says that, regardless of repeated requests for qualifying data, Twitter had failed to offer them with the info required to make an correct and true evaluation of the variety of pretend accounts on its platform.

“Whereas Part 6.4 of the Merger Settlement requires Twitter to offer Mr. Musk and his advisors all information and knowledge that Mr. Musk requests “for any affordable enterprise function associated to the consummation of the transaction,” Twitter has not complied with its contractual obligations.”

Musk’s staff says that it has been looking for extra data from Twitter for almost two months, with Twitter solely offering restricted entry to the required information, in violation of the phrases.

“Typically Twitter has ignored Mr. Musk’s requests, typically it has rejected them for causes that seem like unjustified, and typically it has claimed to conform whereas giving Mr. Musk incomplete or unusable data.”

In complete, Musk’s staff says that Twitter has failed to offer them with data on:

• Data associated to Twitter’s course of for auditing the inclusion of spam and faux accounts in mDAU
• Data associated to Twitter’s course of for figuring out and suspending spam and faux accounts
• Day by day measures of mDAU for the previous eight (8) quarters
• Board supplies associated to Twitter’s mDAU calculations
• Supplies associated to Twitter’s monetary situation

As a result of Twitter has did not adjust to these requests inside an affordable time interval, that, Musk’s staff says, is a violation of the deal’s phrases, and is subsequently cause sufficient to cancel the settlement.

The letter additionally notes that Musk’s staff remains to be unconvinced of Twitter’s metrics, with its personal evaluation of Twitter’s expanded utilization information, which it offered final month, exhibiting that pretend accounts are extra prevalent within the app than Twitter claims:

“Preliminary evaluation by Mr. Musk’s advisors of the data offered by Twitter to this point causes Mr. Musk to strongly imagine that the proportion of false and spam accounts included within the reported mDAU rely is wildly increased than 5%.”

Musk’s staff additionally says that, based mostly on its discussions with firm execs, its understanding is that Twitter consists of accounts which have been suspended inside its energetic person metrics, which it says would see Twitter nonetheless together with identified pretend and spam accounts inside its publicly reported figures. Musk’s staff additionally says Twitter’s course of for figuring out the share of faux accounts ‘seems to be arbitrary and advert hoc’, additional clouding their metrics.

Primarily based on these ongoing questions, and Twitter’s failure to offer sufficient justifications for such, Musk and Co. need to pull out, which is able to now put the onus on the SEC and/or the courts to resolve whether or not the reasoning right here is justified, and the way it strikes ahead, or not, with the merger.

Which may very well be a catastrophe for Twitter, which has already minimize government jobs and shifted its complete enterprise method, in preparation for a pending Musk takeover.

Certainly, this week, studies urged that Twitter CEO Parag Agrawal is ‘prepared to go to warfare’ with a view to make Elon Musk observe by way of along with his takeover bid, even when Musk seems to be to again out of the method. Agrawal would personally be in for a giant payday if the Musk deal have been to undergo – however greater than that, the deal falling aside now would elevate vital questions over Twitter’s future, and its capability, as a enterprise, to grow to be a extra viable, beneficial proposition.

The overriding consensus to date has been that Musk will ultimately need to undergo along with his Twitter takeover push both method, as a result of Musk waived varied due diligence measures in his preliminary supply, with a view to expedite the transaction,

However in at this time’s letter, Musk’s staff has additionally offered a word of readability on this level:

“Regardless of public hypothesis on this level, Mr. Musk didn’t waive his proper to overview Twitter’s information and knowledge just because he selected to not search this information and knowledge earlier than coming into into the Merger Settlement. In actual fact, he negotiated entry and knowledge rights throughout the Merger Settlement exactly in order that he might overview information and knowledge that’s essential to Twitter’s enterprise earlier than financing and finishing the transaction.”

It appears, then, {that a} stand-off is coming, with Musk now making the transfer that many had anticipated, which is able to drive Twitter to reply and supply an in depth clarification of such to the SEC.

Twitter board Chairman Bret Taylor was fast to reply to the information:

Will Musk have the ability to get out of the deal, or will Twitter certainly have the ability to drive Musk to pay up, based mostly on the phrases of the settlement?

It seems to be like issues are about to get actually ugly, which may solely be dangerous for Twitter as a enterprise.