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Twitter Sues Elon Musk

On Tuesday, Twitter filed a lawsuit against Elon Musk in an attempt to force him to follow through with a $44 billion dollar deal to acquire the social media company. The suit comes after Musk moved to terminate the acquisition last week, accusing the company in a letter of making “materially inaccurate” representations related to the number of fake and spam accounts on the platform, as well as failing to provide him with sufficient data to evaluate the scale of the issue. To refute these claims, attorneys on behalf of Twitter layout how Musk went from wanting to buy the company in order to address bots to wanting to exit the deal because of bots. They also argue in their complaint that Musk is making this rash decision not out of compliance concerns, but because the shares of Tesla, which he is heavily relying on for financing the deal, have decreased in value. “The structure of Musk's financing meant that the merger could become significantly more expensive for him if Tesla's stock price were to decline.”

The 62-page court document depicts the history of this deal as quite the spectacle: characterizing Musk as a less-than-serious potential owner, who at one point had “disdain” for the company. “Musk’s strategy is a model of bad faith.” At the same time, because Twitter’s board of directors has an obligation to its shareholders to try to close the deal, they’re seeking to compel him to be the company’s owner.

The complaint alleges that on April 9th, the day Musk announced he wanted to buy Twitter outright instead of joining its board, he texted Twitter Board chair Bret Taylor “purging fake users from the platform had to be done in the context of a private company because he believed that it would make the numbers look terrible.” On April 21st, days before the deal was signed, Musk tweeted “If our Twitter bid succeeds, we will defeat the spam bots or die trying!” Despite this, "Musk made his offer without seeking any representation from Twitter regarding its estimates of spam or false accounts," according to the filing.

Weeks after the deal, Musk began raising concerns that the number of spam and fake accounts might be higher than the 5% of monetizable active daily users (mDAU) that the company publicly reports. On May 13th, Twitter held a two-hour ‘diligence’ meeting with Musk and explained that their spam estimation process includes a daily sampling of a total set of about 9,000 accounts per quarter that are manually reviewed. Later that day, Musk tweeted that the company uses a random sample of 100 accounts to estimate the prevalence of spam accounts.

While Twitter, per the agreement, retained the right to determine whether an information request was reasonable, they say they continued to try to share information with Musk including “a detailed summary document describing the process the company uses to estimate spam as a percentage of mDAU.” However, Musk “exhibited little interest in understanding Twitter’s process for estimating spam accounts,” according to the complaint. During a June 30th conversation with Twitter CFO Ned Segal, “Musk acknowledged he had not read the detailed summary of Twitter’s sampling process provided back in May,” the complaint states. “Once again, Segal offered to spend time with Musk and review the detailed summary of Twitter’s sampling process as the Twitter team has done with Musk’s advisors. That meeting never occurred despite multiple attempts by Twitter.”

Musk’s lawyers pushed back on the idea that Musk signed a binding agreement without conducting due diligence, stressing that “he negotiated access and information rights with the Merger Agreement precisely so that he could review data and information that is important to Twitter’s business before financing and completing the transaction.” However, Twitter alleges that after initially making an offer contingent on due diligence, Musk obtained financing commitments for the deal and then submitted an updated offer on April 21st stating that his offer was “no longer subject to business due diligence.” In securities filings, Musk described his offer as “seller friendly,” and the complaint says that “Twitter has taken Musk’s claimed ‘seller friendly’ draft agreement and secured other key concessions to make it even more so. Not only were there no financing or diligence conditions, but Musk had already secured debt commitments, that together with his personal equity commitment, would suffice to fund the purchase.”

Musk also alleges that Twitter has violated its obligation to seek his consent before deviating from its commitment to conducting business “in the ordinary course” when it let two executives go last week and announced that it would lay off a third of its talent acquisition team. However, Twitter responded in the complaint that while “Musk’s initial draft of the merger agreement would have deemed the hiring and firing of an employee at the level of vice president or above a presumptive violation of the ordinary course covenant absent Musk’s consent…Twitter successfully struck that provision before signing.” Further, Twitter alleges that Musk has “withheld consent to two employee retention programs designed to keep selected top talent during a period of intense uncertainty generated in large part by Musk’s erratic conduct and public disparagement of the company.”

📸: CNN

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