August 16, 2022

Elon Musk Terminates Deal To purchase Twitter; Board To Pursue Legal Action

Up-date (1800ET):   Twitter’ t Board of Directors said on Friday that they intend to close the transaction with Musk at $54. 20 per share, and that they plan to pursue legal action to enforce the agreement, Twitter chairman of the board Bret Taylor tweeted following the news, adding that the board can be “ confident it will prevail in Delaware […]#@@#@!!

Update (1800ET):   Twitter’s Board of Company directors said on Friday which they intend to close the deal with Musk at $54. 20 per share, and that they plan to pursue legal activity to enforce the contract, Twitter chairman of the table Bret Taylor tweeted adopting the news, adding that the table is “ confident it can prevail in Delaware Courtroom of Cancery. ”

Musk’s submitting won’t be the end of this, but it does mark the conclusion of high-stakes suspense over whether he would complete the deal , after a public spat using the company over the number of robots on the platform .

Within recent weeks the company said that it had been sharing information along with Musk in order to consummate the deal as laid out in the combination agreement, and reiterated their intention to close the particular transaction and enforce the agreement, the  Wall Street Journal   reports.

There are no guarantees Mr. Musk can walk away from the deal entirely , as Twitter will be expected to challenge his lawful arguments. Deal clashes frequently end in negotiated settlements that may include a price cut or one-time payments.

Mr. Musk’s lawyer cited concerns over Twitter’s estimates about how many of its daily users are fake or spam accounts as an issue M r. Musk raised as a concern about the deal almost three weeks after he signed it.

Discovery needs to be fun…

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Many were wanting to know how the Musk-Twitter takeover saga ends, or rather,   who will be the very first to sue .

Past due on Friday, Elon Musk decided to resolve the debate by effectively breaching his contract signed three months back, and making a Delaware lawsuit inevitable, by  launching in a 13D filing   that  he could be terminating his Twitter combination agreement, and claiming that will “ Twitter is in material breach of multiple procedures of that Agreement,   appears to have made false plus misleading representations upon which Mr. Musk relied when getting into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect. ”

Of course , none of that will stick as Elon waived all rights to remodel the deal when he agreed upon the purchase agreement on April 25, and  now it will be up to possibly i) a judge to impose the original deal, a good outcome which will likely happen after several years of legal cases or ii) to renegotiate the purchase price lower.

Here is the notice sent from Musk’s law practice, Skadden Arps, to Twitter’s general counsel, Vijaya Gadde.  

Twitter, Inc.

1355 Market Street, Package 900

Bay area, CA 94103

Attn: Vijaya Gadde, Main Legal Officer

Dear Ms. Gadde:

We refer to (i) the Agreement and Strategy of Merger by plus among X Holdings I actually, Inc., X Holdings II, Inc. and Twitter, Incorporation. dated as of April 25, 2022 (the “ Merger Agreement” ) and (ii) our letter to you out dated as of June 6, 2022 (the “ June six Letter” ). As further described below, Mr. Musk is terminating the Merger Agreement because Twitter is within material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is prone to suffer a Company Material Adverse Effect (as that expression is defined in the Merger Agreement).

Whilst Section 6. 4 from the Merger Agreement requires Twitter to provide Mr. Musk and his advisors all data plus information that Mr. Musk requests “ for any good business purpose related to the particular consummation of the transaction, ” Twitter has not complied with its contractual obligations. For nearly two months, Mr. Musk has sought the data and information necessary to “ make an independent assessment of the prevalence of artificial or spam accounts on Twitter’s platform” (our notice to you dated May twenty five, 2022 (the “ May 25 Letter” )). These details is fundamental to Twitter’s business and financial efficiency and is necessary to consummate the particular transactions contemplated by the Combination Agreement because it is needed to make sure Twitter’s satisfaction of the situations to closing, to facilitate Mr. Musk’s financing and financial planning for the transaction, and to engage in transition planning for the business. Twitter has failed or refused to provide this information. Sometimes Twitter has ignored Mister. Musk’s requests, sometimes it has rejected them for factors that appear to be unjustified, and sometimes it has claimed in order to comply while giving Mister. Musk incomplete or useless information.

Mr. Musk and his financial experts at Morgan Stanley were requesting critical information through Twitter as far back as May nine, 2022— and repeatedly since then— on the relationship between Twitter’s disclosed mDAU figures and the prevalence of fake or spam accounts around the platform. If there were actually any doubt as to the nature of these information requests, the particular May 25 Letter clarified that Mr. Musk’s goal was to understand how many of Twitter’s claimed mDAUs were, in fact , fake or spam accounts. That letter mentioned that “ Items one 03 to 1. 13 from the diligence request list contain high-priority requests for organization data and other information meant to enable Mr. Musk great advisors to make an independent assessment of the prevalence of false or spam accounts upon Twitter’s platform… ” The particular letter then provided Tweets with a detailed list of requests to this effect.

Since then, Mr. Musk has provided numerous additional follow-up requests, all aimed at filling the particular gaps in the incomplete info that Twitter provided according to his broad requests for information relating to Twitter’s documented mDAU counts and reported estimates of false plus spam accounts. 1 For example , in our letter to you out dated June 29, 2022 (the “ June 29 Letter” ), we referenced Mr. Musk’s request in the May 25 Letter for “ information that would allow him ‘ to make an independent assessment from the prevalence of fake or even spam accounts on Twitter’s platform. ‘” Because Tweets, by its own admission, supplied only incomplete data which was not sufficient to perform this kind of independent assessment, 2 the June 29 Letter “ endeavored to be even more specific, and to reduce the burden of the [original] ask for, ” by identifying a specific subset of high priority information, responsive to Mr. Musk’s previous requests, for Twitter to immediately make available.

Notwithstanding these repeated requests over the past two months, Twitter offers still failed to provide much of the data and information responsive to Mr. Musk’s repeated requests, including, but not limited to:

  1. Information related to Twitter’s process for auditing the inclusion of junk mail and fake accounts in mDAU. Twitter has still not provided much of the information particularly requested by Mr. Musk in Sections 1 . 01-1. 03 of the May 19 diligence request list that is necessary for him to make an assessment of the prevalence associated with false or spam accounts on its website. Since recently as the June 29 Letter, Mr. Musk reiterated this long-standing request for info related to Twitter’s sampling procedure for detecting fake accounts. The June 29 Notice identified specific data essential to enable Mr. Musk to independently verify Twitter’s representations regarding the number of mDAU upon its platform— including, but not limited to (1) daily worldwide mDAU data since Oct 1, 2020; (2) information regarding the sampling population regarding mDAU, including whether the mDAU population used for auditing junk mail and false accounts will be the same mDAU population utilized for quarterly reporting; (3) results of each step of the sample process for each day throughout the weeks of January thirty, 2022 and June 19, 2022; (4) documentation or even other guidance provided in order to contractor agents used for auditing mDAU samples; (5) information regarding the user interface of Twitter’s ADAP tool and any internal tools used by the particular contractor agents; and (6) mDAU audit sampling details, including anonymized information identifying the contractor agents plus Quality Analyst that reviewed each sampled account, the particular designation given by each service provider agent and Quality Analyst, and the current status of any accounts labelled “ compromised. ” A subsequent request along these outlines should not have been necessary, that information should have been offered in response to Mr. Musk’s first diligence request. Yet, to date, Twitter has not provided any of this information.
  2. Info related to Twitter’s process for identifying and suspending junk e-mail and fake accounts. Along with information regarding Twitter’s mDAU audits, the June twenty nine Letter also reiterated demands for data specifically recognized in Sections 1 . 04-1. 05 of the May 19 diligence request list concerning Twitter’s methodology and functionality data relating to identification plus suspension of spam plus false accounts, including, however, not limited to, information regarding account suspensions, including information sufficient to identify daily numbers of account suspensions since October 2020 and numbers of account suspensions for each of Twitter’s internal reasons for suspension. In addition , during the June 30, 2022 contact, Twitter’s representatives indicated for the first time that the workflow and processes for detecting spam and false accounts in the mDAU population is different and separate from the workflow and processes for identifying and suspending accounts in violation associated with Twitter’s policies. On that call, Twitter indicated it would not be willing to supply information regarding the methodologies employed to identify and suspend this kind of accounts.
  3. Every day measures of mDAU for the past eight (8) quarters. Upon June 17, 2022 (the “ June 17 Letter” ) Mr. Musk reiterated his request for “ entry to the sample set used and calculations performed, in addition to any related reports or even analysis, to support Twitter’s portrayal that fewer than 5% from the mDAUs are false or even spam account. ” To that particular end, Mr. Musk requested that Twitter provide “ daily measures of mDAU for the previous eight sectors, and through the present. ” This information is derivative from the information Mr. Musk very first sought in Sections 1 ) 01-1. 03 of the May 19 diligence request list. Although Twitter has provided certain summary data regarding the mDAU calculations, Twitter has not offered the complete daily measures because requested.
  4. Panel materials related to Twitter’s mDAU calculations. In the June seventeen Letter, Mr. Musk requested a variety of board materials plus communications related to Twitter’s mDAU metric, its calculation of the number of spam and false accounts, its disclosure from the mDAU metric, and the company’s disclosure of the number of junk mail accounts on the platform. Twitter has provided an incomplete information set in response to this demand, and has not provided details sufficient to enable Mr. Musk to make an independent assessment associated with Twitter’s board and management’s understanding of its mDAU metric.
  5. Materials related to Twitter’s financial condition. Mr. Musk is entitled, under Area 6. 4 of the Merger Agreement to “ all information concerning the business … from the Company … for any fair business purpose related to the particular consummation of the transactions” and under Section 6. 11 of the Merger Agreement, to information “ reasonably requested” in connection with his efforts to obtain the debt financing necessary to consummate the transaction. To that end, Mr. Musk requested on June 17 a variety of panel materials, including a working, bottoms-up financial model for 2022, a budget for 2022, a good updated draft plan or budget, and a working duplicate of Goldman Sachs’ value model underlying its justness opinion. Twitter has provided only a pdf copy of Goldman Sachs’ final Board display.

In other words, Twitter has not provided info that Mr. Musk has requested for nearly two months despite his repeated, detailed clarifications intended to simplify Twitter’s identification, collection, and disclosure of the very relevant information sought within Mr. Musk’s original demands.

While Tweets has provided some information, that will information has come with guitar strings attached, use limitations or other artificial formatting features, which has rendered some of the info minimally useful to Mr. Musk and his advisors. For example , when Twitter finally provided entry to the eight developer “ APIs” first explicitly requested by Mr. Musk within the May 25 Letter, those APIs contained a rate limit lower than what Twitter provides to its largest business customers. Twitter only offered to provide Mr. Musk with all the same level of access as some of its customers after we explained that throttling the rate limit prevented Mr. Musk and his advisors from performing the analysis that he wanted to conduct in any reasonable time period.

Additionally , all those APIs contained an artificial “ cap” on the amount of queries that Mr. Musk and his team can operate regardless of the rate limit— a problem that initially prevented Mr. Musk and his advisors from completing an analysis of the data in any reasonable period of time. Mr. Musk raised this problem as soon as he became conscious of it, in the first section of the June 29 Notice: “ we have just been informed by our data experts that Twitter has placed an artificial cap on the number of searches our experts can perform with this information, which is now preventing Mr. Musk and his team from doing their analysis. ” That cap was not removed until July 6, after Mr. Musk demanded its removal for a second time.

Based on the foregoing refusal to provide information that Mr. Musk has been requesting since May 9, 2022, Twitter is in breach of Sections 6. 4 plus 6. 11 of the Merger Agreement.

Regardless of public speculation on this point, Mr. Musk did not waive his right to review Twitter’s data and information mainly because he chose not to look for this data and info before entering into the Merger Agreement. In fact , he discussed access and information rights within the Merger Agreement specifically so that he could review data and information that is crucial that you Twitter’s business before financing and completing the transaction.

As Tweets has been on notice of its breach since at least 06 6, 2022, any remedy period afforded to Tweets under the Merger Agreement has lapsed. Accordingly, Mr. Musk hereby exercises X Holdings I, Inc. ‘s right to terminate the Merger Contract and abandon the deal contemplated thereby, and this notice constitutes formal notice associated with X Holding I, Inc. ‘s termination of the Merger Agreement pursuant to Area 8. 1(d)(i) thereof.

In addition to the foregoing, Twitter is in breach of the Combination Agreement because the Merger Agreement appears to contain materially incorrect representations. Specifically, in the Combination Agreement, Twitter represented that no documents that Tweets filed with the U. S i9000. Securities and Exchange Payment since January 1, 2022, included any “ false statement of a material fact” (Section 4. 6(a)). Twitter has repeatedly made claims in such filings regarding the part of its mDAUs that are false or spam, including statements that: “ We have performed an internal review of a sample of accounts and estimate the average of false or spam accounts during the initial quarter of 2022 symbolized fewer than 5% of our mDAU during the quarter, ” plus “ After we determine an account is spam, harmful automation, or fake, we all stop counting it within our mDAU, or other associated metrics. ” Mr. Musk relied on this representation within the Merger Agreement (and Twitter’s numerous public statements concerning false and spam balances in its publicly filed SEC documents) when agreeing in order to enter into the Merger Agreement. Mr. Musk has the directly to seek rescission of the Merger Agreement in the event these materials representations are determined to become false.

Although Twitter has not yet supplied complete information to Mr. Musk that would enable him to do a complete and extensive review of spam and phony accounts on Twitter’s platform, he has been able to partially and preliminarily analyze the particular accuracy of Twitter’s disclosure regarding its mDAU. Could analysis remains ongoing, most of indications suggest that several of Twitter’s public disclosures regarding its mDAUs are either fake or materially misleading. 1st, although Twitter has consistently represented in securities filings that “ fewer than 5%” of its mDAU are false or spam accounts, based on the information provided by Twitter up to now, it appears that Twitter is dramatically understating the proportion of spam and false balances represented in its mDAU rely. Preliminary analysis by Mr. Musk’s advisors of the info provided by Twitter to date causes Mr. Musk to highly believe that the proportion of false and spam balances included in the reported mDAU count number is wildly higher than 5%. Second, Twitter’s disclosure that it ceases to count fake or spam users in its mDAU when it determines those users are fake seems to be false. Instead, we understand, based on Twitter’s representations during a June 30, 2022 call with us, that Twitter consists of accounts that have been suspended— and thus are known to be fake or even spam— in its quarterly mDAU count even when it is aware that the suspended accounts were included in mDAU for that one fourth. Last, Twitter has represented that it is “ continually trying to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our mDAU… ” But , Twitter’s process just for calculating its mDAU, and the percentage of mDAU comprised of non-monetizable spam accounts, appears to be arbitrary and ad hoc. Revealing that Twitter has a reasoned process for calculating mDAU when the opposite is true would be false and misleading.

Twitter’s representation within the Merger Agreement regarding the accuracy of its SEC disclosures concerning false and spam balances may have also caused, or even is reasonably likely to result in, a Company Material Adverse Effect, which may form an additional basis pertaining to terminating the Merger Agreement. While Mr. Musk great advisors continue to investigate the precise nature and extent of this event, Mr. Musk provides reason to believe that the true number of false or spam accounts on Twitter’s system is substantially higher than the amount of less than 5% represented simply by Twitter in its SEC filings. Twitter’s true mDAU depend is a key component of you can actually business, given that approximately 90% of its revenue comes from ads. For this reason, to the extent that will Twitter has underrepresented the number of false or spam accounts on its platform, that could constitute a Company Material Adverse Effect under Section seven. 2(b)(i) of the Merger Contract. Mr. Musk is also evaluating the company’s recent financial performance and revised outlook, and is considering whether the company’s declining business prospects and monetary outlook constitute a Company Materials Adverse Effect giving Mr. Musk a separate and specific basis for terminating the particular Merger Agreement.

Finally, Twitter also did not comply with its obligations below Section 6. 1 of the Merger Agreement to seek and obtain consent before deviating from its obligation to conduct its business in the ordinary course and “ preserve substantially undamaged the material components of its current business organization. ” Twitter’s conduct in shooting two key, high-ranking employees, its Revenue Product Direct and the General Manager of Consumer, as well as announcing on July 7 that it was installing off a third of its talent acquisition team, implicates the normal course provision. Twitter has additionally instituted a general hiring freeze out which extends even to reconsideration of outstanding work offers. Moreover, three professionals have resigned from Tweets since the Merger Agreement has been signed: the Head of Data Science, the Vice Leader of Twitter Service, as well as a Vice President of Item Management for Health, Discussion, and Growth. The Company has not received Parent’s consent with regard to changes in the conduct of its company, including for the specific adjustments listed above. The Company’s actions therefore constitute a material infringement of Section 6. 1 of the Merger Agreement.

Accordingly, for all of these factors, Mr. Musk hereby workouts X Holdings I, Incorporation. ‘s right to terminate the particular Merger Agreement and get out of the transaction contemplated therefore, and this letter constitutes formal notice of X Keeping I, Inc. ‘s end of contract of the Merger Agreement pursuant to Section 8. 1(d)(i) thereof.


/s/ Paul Ringler
Mike Ringler
Skadden, Arps, Slate, Meagher & Flom LLP

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With all due respect in order to Elon and his law firm , all of the above is hokum, and all that matters is definitely his signature on the first merger agreement when he waived all rights. And now it is up to the Twitter plank to decide how to pursue next steps.

TWTR stock dropped 7% after normal office hours on an outcome that everybody should have priced in presently: the real fun begins today.

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