It shouldn’t come as a huge surprise that Elon Musk withdrew his $44 billion offer to buy Twitter.
There was the “peril” report in the Washington Post, of course, but also everything those tweet. So many tweet. Why Is he Tweeter then a lot? Either way, Musk’s plan to break the deal wasn’t announced in a tweet, but in a filing with the Securities and Exchange Commission on Friday night. The filing echoes Musk’s very public claims that Twitter failed to provide information that would allow his team to determine whether the company correctly measured its fake user count.
We understand why M&A arbitrageurs have been cautious.
Besides Musk’s earlier complaints (regarding all bots), we found a few other interesting items in the aforementioned filing. With our emphasis:
…Twitter’s disclosure that it stops counting fake users or spam users in its mDAU when it determines those users are fake appears to be false. Instead, we understand, based on representations from Twitter during a call with us on June 30, 2022, that Twitter includes accounts that have been suspended — and therefore known to be fake or spam — in its quarterly mDAU tally, even though it knows suspended accounts were included in mDAU for that quarter..
First, are we sure that all suspended accounts are necessarily fake? While none of your verified Twitter correspondents here at FT Alphaville have been suspended, they may know some people whose accounts were temporarily suspended when their takes got a little too spicy. It’s possible that Twitter’s terminology for this type of penalty suspension is different, and we’re guessing the social media platform’s PR team was already very busy late Friday night.
Second, like Matt Levine observed on TwitterMusk’s team also complains that they requested a spreadsheet of the Goldman Sachs valuation model and received a PDF instead:
Mr. Musk requested a variety of documents from the board on June 17, including a bottom-up working financial model for 2022, a budget for 2022, an updated draft plan or budget, and a work copy of Goldman Sachs’ valuation model underlying its fairness opinion. Twitter only provided a pdf copy of the final Goldman Sachs board presentation.
And finally, Musk’s team takes issue with Twitter’s tightening of the belt following the takeover announcement:
Twitter’s conduct in laying off two key high-ranking employees, its head of revenue products and the general manager of Consumer, as well as announcing on July 7 that it was laying off a third of its talent acquisition team, involves the disposition of the normal course. Twitter has also instituted a general hiring freeze that even extends to reconsidering open job postings. Additionally, three executives have resigned from Twitter since the merger agreement was signed: the head of data science, the vice president of Twitter service, and a vice president of health product management, the conversation and growth. The Company has not received Parent’s consent for changes in the conduct of its business, including the specific changes listed above.
FT Alphaville East by no means the first to say that this could be an attempt to pressure Twitter into agreeing to a lower purchase price. The Nasdaq Composite has slipped 26% this year, after all. While Twitter shares are down a slight 15% by comparison, Musk’s offer is now a 47% premium to the company’s current enterprise value of nearly $30 billion. dollars.
Twitter may not want to get into a long legal battle against a guy who took on the SEC and walked away relatively unscathed.
But he may try to force Musk to complete the purchase. If we take the company president’s tweet on Friday night at face value, there could be some disputes in the cards.
Twitter’s board has agreed to complete 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.
— Bret Taylor (@btaylor) July 8, 2022
The relatively low break-up fee matters now, because it raises the stakes for Twitter to push Musk to close the deal, rather than just asking for a one-time payment. Our FT colleagues Sujeet Indap and James Fontanella-Khan reported that damages are capped at $1 billion.
Some readers will recall that buyer’s remorse was not reason enough to let Tyson Foods back out of its 2001 deal to buy IBP. And our colleagues also point out that the Delaware Chancery Court required follow-up as recently as last year.
This thread from Texas appellate attorney Raffi Melkonian may also provide information.
There’s a lot of confusion on my timeline about whether Elon has the right to walk away from the Twitter deal for $1 billion. No. He’d write that check any second if he could get away.
The deal allows Twitter to try to get him to buy the company at the price he agreed. 1/ pic.twitter.com/PmjJGa49Qx
— Raffi Melkonian (@RMFifthCircuit) July 9, 2022
The “plans to take legal action” cited by the Twitter president could of course take many forms. This could go all the way to arguments in the Delaware Chancery court or end with a simple renegotiation of the deal. A renegotiated agreement could also be challenged; shareholders might not be happy if Twitter’s board accepts a lower price for the company, although the success of such a challenge is a different matter.
Considering all of the characters involved in the deal and its funding, the biggest surprise would be if the Twitter fight turned out to be anything other than a media circus. If the case goes to court, true corporate law fanatics will surely miss Leo Strine on the bench.