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Musk is trying to re-write merger agreement with Twitter
Musk is trying to invent a way out of the merger with Twitter. The Merger Agreement is filed with the SEC and you read it here https://www.sec.gov/Archives/edgar/data/1418091/000119312522120461/d310843dex21.htm There is no representation by Twitter as to the number of bots in the Merger Agreement. Musk is trying to pretend that there is some sort of representation and warranty as to the number of bots on Twitter
Here is a good analysis of why Musk is wrong and why the attempt to rewrite the merger agreement is going to fail
Link to tweet
https://www.bloomberg.com/opinion/articles/2022-07-18/elon-wants-to-fight-the-bots?utm_medium=social&utm_campaign=socialflow-organic&cmpid%3D=socialflow-twitter-view&utm_content=view&utm_source=twitter#xj4y7vzkg
In our actual universe none of this is true. In the real world, Musk signed a merger agreement with Twitter, and it was publicly filed, and you can read it here. That merger agreement does not mention bots at all. In pursuing and signing this deal, Musk was excited about “defeating” the bots, sure, but he didn’t care how many there were. (The more of them there are, the more glory in defeating them.) He did not do any due diligence on the number of bots before signing the agreement, nor did he ask Twitter to make any promises about how many bots there were. Nothing in the negotiations over the deal, or in the merger agreement itself, was in any way contingent on anything at all about bots.
Now, even in the real world, the merger agreement does contain a representation that none of Twitter’s filings with the US Securities and Exchange Commission “contained any untrue statement of a material fact.” And if that representation is false enough to have a “material adverse effect” on Twitter, then Musk can get out of the deal.
And Twitter’s SEC filings do mention bots. But they don’t contain any promises that no more than 5% of Twitter’s users are bots. These filings are also public, and you can also read them. Here is what they say about bots:
Let’s pick out the factual assertions in that paragraph:
1. There are “false or spam accounts” on Twitter.
2. Twitter reviews some sample accounts each month.
3. It estimates, based on that review, that the bots (false or spam accounts) are fewer than 5% of mDAUs.
4. That estimate is based on the “average of false or spam accounts in the samples.”
5. That estimate, and the labeling of spam accounts, is subjective; Twitter “applied significant judgment” to reach it.
6. “The actual number of false or spam accounts could be higher than we have estimated.”
Now, even in the real world, the merger agreement does contain a representation that none of Twitter’s filings with the US Securities and Exchange Commission “contained any untrue statement of a material fact.” And if that representation is false enough to have a “material adverse effect” on Twitter, then Musk can get out of the deal.
And Twitter’s SEC filings do mention bots. But they don’t contain any promises that no more than 5% of Twitter’s users are bots. These filings are also public, and you can also read them. Here is what they say about bots:
There are a number of false or spam accounts in existence on our platform. We have 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 represented fewer than 5% of our mDAU during the quarter. The false or spam accounts for a period represents the average of false or spam accounts in the samples during each monthly analysis period during the quarter. In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated.
Let’s pick out the factual assertions in that paragraph:
1. There are “false or spam accounts” on Twitter.
2. Twitter reviews some sample accounts each month.
3. It estimates, based on that review, that the bots (false or spam accounts) are fewer than 5% of mDAUs.
4. That estimate is based on the “average of false or spam accounts in the samples.”
5. That estimate, and the labeling of spam accounts, is subjective; Twitter “applied significant judgment” to reach it.
6. “The actual number of false or spam accounts could be higher than we have estimated.”
Musk wants to claim that he was promised that the botts would be less that 5% and he is not happy with the way that Twitter calculates the number of botts. However that is not what the merger agreement says and Musk cannot cancel the merger agreement unless he can prove a violation that will have a material adverse effect.
In today's hearing the judge sided mostly with Twitter which is not a good sign for Musk
On Tuesday, there will be a hearing on Twitter’s motion to expedite the case and have a trial in September, which Musk is opposing. (He wants a trial in February 2023.) That hearing will not decide the case or anything, but it will set the tone in important ways. If the judge, Delaware Chancellor Kathaleen McCormick, agrees with Musk that this should be a fact-intensive trial in which dozens of experts will have to testify about how to count bots, then she will probably delay the trial until 2023. That will be very good for Musk: the delay, but also the focus on bot-counting. If she agrees with Twitter that this should be a straightforward trial about what the merger agreement says and whether Musk has to do it, then she will probably set the trial for September, and that will be very good for Twitter.
The ruling for Twitter indicates that the judge is probably not doing to let this trial be solely about botts.
Link to tweet
Having a trial in October is not good news for Musk
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