Elon Musk is trying to back out of his $44 billion agreement to acquire Twitter, as per a filing with the Securities and Exchange Commission (SEC) submitted on Friday.
Musk’s lawyers claim Twitter made “false and misleading” statements during negotiations concerning the number of monetizable daily active users (mDAUs) on the platform.
In a letter to Twitter’s Chief Legal Officer Vijaya Gadde, Musk’s lawyer stated:
Twitter is in breach of the Merger Agreement because the Merger Agreement appears to contain materially inaccurate representations…
Twitter has repeatedly made statements in such filings regarding the portion of its modus that are false or spam, including statements that: ‘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…
Mr. Musk relied on this representation in the Merger Agreement (and Twitter’s numerous public statements regarding false and spam accounts in its publicly filed SEC documents) when agreeing to enter into the Merger Agreement.
Mr. Musk has the right to seek rescission of the Merger Agreement in the event these material representations are determined to be false.”
In other words, Musk’s lawyers claim Twitter isn’t being truthful about how many of its members are bots. Following public criticism of Twitter’s alleged bot problem, it may be no surprise to see Musk’s lawyers cite it as the reason for backing out of the agreement. Another reason Musk may be having second thoughts is the sharp decline in stock value. When Musk offered to purchase Twitter, he valued it at $54.20 per share. Since then, the value fell to $36.81 per share. Whether the reason is bots or the bottom line, it will not be easy for Musk to walk away from buying Twitter.
What Happens Now?
Twitter is committed to closing the deal and says it will pursue legal action to enforce the agreement. Bret Taylor, the chairman of Twitter’s board of directors, responded to Musk’s letter. If the Twitter board moves forward with legal action, the onus will be on Musk to prove Twitter breached the agreement. Did Twitter lie about the number of bots it has? Is that a valid reason for Musk to back out of buying the company? Those are questions for a judge to decide after reviewing cases presented by both parties.