This will be a long, detailed, technical read. Some legal analysis, some technical, but it should be a great learning experience for many. So let’s get started. This is bathroom reading material, folks. It’s long, it’s fact driven, it’s detailed. This is Ergo in research mode.
First — I’m not a fan of Elon Musk at all. From sexual harassment cases to suing his way into being labeled a founder, to effectively stealing the Tesla name and advocating for indentured slavery by sending people to mars with the excuse of yay loans/jobs and even causing the EU to worry, openly defending racism in the face of regulators and provoking the SEC continually while being slapped down and grifting continually, to openly defaming people and selling nearly vaporware (Starlink capabilities mostly don’t exist but do cause other problems), Musk actively represents the Alt Right as would Joe Rogan , Alex Jones, Jeff Bezos— notably Musk is tied to at the hip via Peter Thiel — IE, notable nazi/white supremacist. Shocker! It does take that much to highlight how many ways the man wages economic terrorism upon the world. I consider him a blight upon society, at best — and a drag upon society, in reality. Anyway, reality check on Musk over. He’s bad in a million ways, and good in very few — and people are bad at statistics, so they think he’s great.
So now, we have a new one. Musk messed up on the Twitter acquisition and has tried to back out continually — that much is known. However, he’s been really good at misleading the press. See articles like this:
Sounds like ooo, Musk is getting a hit on the spam bot problems of Twitter, which he said he’d tackle in the first place. Way to go Ars! Clearly!
I want to very specifically highlight the first link for such news when searched, which is a known Russian propaganda & alt right site — the Epoch Times, which has been thankfully losing relevance after doing things like embracing violence and racism and fascism outright. So, no, not a good source.
TIME provides coverage but isn’t as mislead — unsurprisingly. Time is almost as good as Techdirt, covering the reality behind what’s going on.
But before I get into that, let’s take a step back here and sum up and then we’ll get to the debunk including Time’s article. Why did Musk want to buy Twitter again, and then, why did he want to get out of it?
As far as buying it, ah yes the rightwing trope: free speech (reality of the right wing version: for Trump). From a conservative (after finally ripping the mask off and hiding it for years) who openly supports Free Speech by supporting China’s restrictions of free speech continually. The only kind of speech he wants to be free is the Alt Right’s, not anyone else. Oh, and for someone under SEC investigation about Twitter after settling for manipulating stocks on Tesla, that’s not too smart. So he wants free speech to be able to manipulate stocks, is the message this sends. IE: “I want to not be held accountable for my actions, and I’ve got money to spend to do it!” If this doesn’t sound like narcissism and bad business decisions ala Trump/Alt Right/conservatives, then I’d be willingly blind. There’s no other way.
Yeah, and he signed to buy the damn thing. And then tried to back out, predictably.
How did he try to back out? Well, let’s start with some Techdirt article quotes:
— begin quotes —
In news that is not surprising at all, and seems to be playing out just as people predicted a month ago, Elon Musk has officially claimed that Twitter is in breach of its merger agreement and says he’s pulling out of the deal. The actual details, of course, are not that simple. There is no actual escape hatch like that here. Musk made a legal agreement to pay $44 billion for the company and can’t just walk away.
As we noted back in June, he appeared to have hired some very expensive lawyers to come up with some sort of pretext for walking away, and it’s playing out exactly in the manner described. Musk had specifically waived his rights to due diligence prior to the deal, but the merger agreement did include a promise to provide Musk with necessary data to conclude the deal.
For much of the month of May, Musk (who must be a terrible fucking poker player) telegraphed his intentions to bail on the deal by whining about how much spam there was. This made no sense at any level. First, when Musk announced the deal, he insisted he was doing it in order to tackle the spam challenge on the platform (a problem that really doesn’t impact most users of the site — but does impact the very most high profile users like Musk). So to then suddenly start whining about spam seems transparently a pretext.
This then goes hand in hand with this quote:
So, his second attempt to come up with an excuse was to claim that Twitter publicly lied to the SEC in its filings regarding how much spam was counted among its monetizable daily active users. This also seemed ridiculous, as Twitter had been publicly reporting those numbers for quite some time, and Musk could have explored those prior to the deal itself but, again, deliberately chose to waive those rights. You can’t do a deal in which you agree not to explore the data, and then complain that you hadn’t seen the data.
Somewhere around this time, it seems clear that Musk’s lawyers explained to him that this wouldn’t get them out of the deal, and (it seems likely) suggested that they could cook up some alternative pretext that at least someone could try to actually argue in court — because it was clear that court is where this would all end up.
And thus, behold the bullshit brilliance of the lawyers at Skadden, Arps, who earned their large paycheck by zeroing in on the part of the deal about needing to supply Musk with the information necessary to close the deal. They just started requesting tons of data, specifically related to the whole spam/mDAU discussion, knowing that they could just keep asking for more data, some of it impossible to actually supply to Musk, and eventually they would be able to say that Twitter wasn’t supplying the data requested, and thus was in breach… and therefore the deal was off.
And, that’s exactly what happened.
So this means: “spam is a problem” etc etc, is basically untrue. That’s not a lawsuit target anywhere. Which means the ARS article above basically says nothing. Way to go there, editors! 👍
Oh, and the last bit. Timing:
And, if you really want any extra proof that this was all pretextual and planned out back in May, and executed over the last month, Musk is doing this basically on the first day he can. The original merger agreement included a termination clause for contractual breach, with a 30 calendar day notice. It has been exactly 30 days since Musk sent that obviously pretextual complaint about providing data. We hit the deadline, and now Musk says he’s out.
Are you caught up now? Yes, this is what happened to Twitter, by Musk. Literally forecast, played out, verbatim. Basically: I paid lawyers, lawyers help me plz get me out of my bad deal! I have money! Halp! Haaaaalp! Solve my 44 billion dollar problem! Some innovator here. Excuse me while I chuckle to myself and be glad I am capable of listening to people who teach me to be a true leader, instead of just running on my cajones thinking I’m some alpha who isn’t, also known as Musk. His musk is his stench of grift, and that’s about the only kind that exists. Also, this lawsuit will be moving quickly, and is already in Twitter’s favor. If you want to read just how in trouble Musk is, look at all he agreed to.
I’ll give you a few choice quotes on that one and then we can get to what’s new. I’m just going to copy and paste part of the summary of that article:
The rest of the lawsuit is just an account of basically every ridiculous stupid thing that Elon Musk has done through the course of this saga. It’s quite something laid out in black and white and it’s worth reading the whole thing. It goes through the twists and turns that show how much of this appears to be that the world’s richest man can’t bother with pesky little things like understanding the consequences of his own actions, and focuses on making huge bets based solely on his intuition and with little care for facts or details.
Just as one example, in his rush to close the deal, Musk agreed to a few clauses in the agreement that are just incredibly friendly to Twitter (and incredibly useful in this litigation):
The agreement was negotiated through the night and, in the process, became even more seller-friendly. Among the provisions not contained in Musk’s proposal but included at Twitter’s insistence were an undertaking by defendants, including Musk, to “take or cause to be taken . . . all actions and to do, or cause to be done, all things necessary, proper or advisable” to obtain the financing (already committed) to consummate the transaction, Ex. 1 § 6.10(a); a clear disclaimer of any financing condition to closing, id. § 6.10(f); and a right on Twitter’s part to request and promptly receive updates from Musk about his progress in obtaining financing, id. § 6.10(d). These provisions ensured that financing would be no obstacle to closing and that the company would have the right to stay informed of Musk’s progress in arranging his financing.
Twitter also notes (and this was new to me) that part of the agreement that they added (which Musk’s proposal did not have) was the right to hire and fire at all levels of the company between the announced deal and Musk taking over. Musk originally did not want that, but then agreed to it. This is extremely noteworthy, because Musk’s lawyers tossed in another Hail Mary pretextual argument that Twitter’s firing of a few top executives after the deal was announced somehow violates the deal. Yet, as Twitter is showing here, Musk agreed explicitly that it would not.
Oops.
Also, it appears that the purchase agreement pretty much directly and somewhat explicitly excluded all of the reasons that Musk is now trying to lay out for voiding the deal:
The parties thus agreed that any circumstance affecting the market generally or other social media companies would not excuse defendants from closing. Nor would any circumstance arising from the existence or performance of the agreement, or from any communication by Musk, “including the impact of any of the foregoing” on any of Twitter’s relationships with, among others, customers. Likewise, matters that Twitter disclosed in sections of its SEC filings other than the “Risk Factors” and “Forward-Looking Statements” sections cannot constitute a Company Material Adverse Effect. And Twitter’s failure to meet financial projections will not excuse closing unless that failure results from an occurrence independently qualifying as a Company Material Adverse Effect (taking into account all of the express exclusions).
Also, he can’t even escape if his financing partners bail on him:
Notwithstanding anything contained in this Agreement to the contrary, the Equity Investor, Parent and Acquisition Sub each acknowledge and affirm that it is not a condition to the Closing or to any of its obligations under this Agreement that the Equity Investor, Parent, Acquisition Sub and/or any of their respective Affiliates obtain any financing (including the Debt Financing) for any of the transactions contemplated by this Agreement.
I mean, holy hell, Elon. How the fuck did you agree to sign this and then… get cold feet two weeks later? This is just astoundingly, embarrassingly bad. I know that your fans want to label you a super genius — and I sorta believed you were pretty damn smart myself until this whole debacle went down. Now you look like the kind of sucker who gets taken for a ride by street hustlers playing a three card monte.
Back to the details. Once again, the agreement makes clear Musk can’t back out by claiming Twitter didn’t share important information with him:
Nor is there any diligence condition. Indeed, each of Parent and Acquisition Sub represents that it “conducted, to its satisfaction, its own independent investigation, review and analysis of the business, results of operations, prospects, condition (financial or otherwise) or assets of the Company and its Subsidiaries,” and that, in determining to proceed with the merger, each “relied solely on the results of its own independent review and analysis and the covenants, representations and warranties of the Company” in the merger agreement. Id. § 5.11. Parent and Acquisition Sub further acknowledge that “neither the Company nor any of its Subsidiaries, nor any other Person, makes or has made or is making any express or implied representation or warranty with respect to the Company or any of its Subsidiaries or their respective business or operations, in each case, other than those expressly given solely by the Company in Article IV,” and they represent that in agreeing to the merger they were not relying on “any express or implied representation or warranty, or the accuracy or the completeness of the representations and warranties” in the merger agreement about Twitter and its business and its operations “other than those expressly given solely by the Company in Article IV.”
In other words, even if — as many Musk fans keep wanting to insist — Twitter misled the SEC (and there’s little to no evidence to support that claim), in the merger agreement Musk explicitly said that he didn’t rely on such statements in the first place, and thus it wouldn’t make any difference at all.
I mean, kudos to Twitter’s lawyers who put together this purchase agreement, because they appear to have anticipated every stupid trick that Musk would try to pull.
— end quotes on that article —
So what’s new? A whistleblower. Let’s get back to the updates. This one will include some choice quotes from Time first:
Legal experts were skeptical that the claims would give billionaire Elon Musk a decisive advantage in his court battle to back out of his deal to buy the company.
Musk has said for months that Twitter misled investors about the platform’s financial health, including the proportion of spam bots on the site.
But, heres’ the smart people stepping in instead of the Muskrat.
But Ann Lipton, a law professor at Tulane University who specializes in corporate litigation, says the documents shed little light on the key legal issue: Whether Twitter misled Musk, especially over how it tallies users. “The [whistleblower disclosure] basically just alleges that mDAU is the wrong metric,” Lipton told TIME after it was released. For Musk’s case, “that’s not the real legal question.”
and
Adam Badawi, a law professor at the University of California, Berkeley who specializes in corporate transactions, agrees that the whistleblower report doesn’t change much for Musk’s lawsuit. “I don’t see anything in the whistleblower report that contradicts Twitter’s previous statements,” he tells TIME.
Badawi also notes, though, that Musk waived his right to due diligence in the original purchase agreement. “To say that Twitter breached their contract is a non-starter,” Badawi says. “This is among the most seller-friendly agreements I’ve ever seen.”
So what’s new?
Mudge’s whistleblowing report actually confirms Twitter’s position, while pretending otherwise
In case you wondered who got things wrong, it’s probably Mudge. I can’t wait for people to find Mudge/Musk conversations.
— quote
Mudge also admits that Twitter is incentivized to not count spam in mDAU:
Executives are incentivized to avoid counting spam bots as mDAU, because mDAU is reported to advertisers, and advertisers use it to calculate the effectiveness of ads. If mDAU includes spam bots that do not click through ads to buy products, then advertisers conclude the ads are less effective, and might shift their ad spending away from Twitter to other platforms with higher perceived effectiveness.
So, as a start, that contradicts the claims of Musk and his fans that Twitter has incentive to look the other way when reporting spam in the mDAU because it benefits the numbers. As Mudge notes, Twitter has incentives not to count spam in the mDAU.
— end quote
So how is Musk going to be like ha ha! Spam! Spam’s a problem!
And now here’s the reality: they’re trying to Hail Mary, to push this beyond the midterm political elections:
The legal dispute is set to go to trial in Delaware Chancery Court in October, though legal experts say it’s possible the judge issues a delay given the new information from the whistleblower disclosure.
Musk wanted February and is digging up all he can, because clearly politics. And yet:
Musk has already contested Twitter’s use of mDAU in his legal filing, and has claimed that if mDAU is proved to be less than representative of the general Twitter population, executives have effectively misrepresented the value of the company.
Sure seems like someone would argue anything, anything they can, anything as Musk is crying for help here, anything he can do to avoid accountability.
I’m still estimating he ends up paying between $15B and $44B, and surely it’s a coincidence that Musk sold a ton of shares and Bitcoin. So that’s about $9B-$10B out of $15B-$44B. Don’t be surprised if Musk offers to settle for $10B or $15B as that’s pretty much all he can afford.
But umm, game set match Musk. Well played, I mean not everyone can gamble away 11 figures on instinct and intuition. Even casinos probably dont’t do that often.
Oh, and whoops. Here’s what really happened from Mudge who really, really has an ax to grind because he was fired from Twitter. Meaning he was hired by Dorsey for whatever reason, but was fired by the current CEO:
— quote begin
Mudge then he puts forth his argument for why he thinks Musk is correct — even though it’s actually confirming that Twitter is correct:
However there are many millions of active accounts that are not considered “mDAU,” either because they are spam spam bots, or because Twitter does not believe it can monetize them. These millions of non-mDAU accounts are part of the median user’s experience on the platform. And for this vast set of non-mDAU active accounts, Musk is correct: Twitter executives have little or no personal incentive to accurately “detect” or measure the prevalence of spam bots.
So… I’m really confused by this section, and the claims that “Musk is correct.” Because in court they’re not arguing about how much spam is on the overall platform. They’re arguing about how much is in the mDAU. So, rather than supporting Musk, this paragraph simply confirms exactly what Twitter has been saying in SEC filings and in court. What it reports to the SEC is an estimate of how many spam accounts slip through other processes, and are inadvertently counted in the mDAU.
That is all Twitter has ever claimed in a legally binding way.
And here, Mudge is confirming that Twitter is not just exactly correct, but also that it is incentivized to behave exactly this way, and not at all how Musk has described.
— end quote
This is why people are told to stick to their lane. Let experts be experts in their respective fields, don’t think you can cross the fields an be the experts. I’m good at reading and summarizing articles and I read enormous walls of text continually, and have taken speedreading classes as a kid. I am quite literally experienced at this. But the rest? I’ll rely on the experts because that’s what I’m doing. Mudge is not an expert in Twitter from a legal standpoint, he’s good with security (like, I can’t even hold a candle). But the two are not the same thing, and only Musk would try to argue that they are.
There’s only one hail mary left, and it’s not in the hands of Mudge, although it sure looks suspicious . It’s a question of whether FTC and EU are reviewing for their sakes or for Musk’s , and we won’t know until details come out. — quote
Oddly, Mudge’s report may help Musk — but in a totally different way
The new whistleblower report is kicking off an FTC review, apparently EU data protection regulators are looking into it as well, and it’s possible that others are investigating too. Those investigations, and the possibility of a consent decree violation, might… actually… be an MAE that allows him to escape the deal! In addition, Mudge is alleging fraud (though that’s mostly redacted, so no idea how credible it is). And if that’s shown to be the case as well, it might also be an MAE.
— endquote
So excuse me, I’m going to go build rocketships better than engineers at Tesla, because clearly I am a very stable genius who believes he can do so because nobody is around to tell me I’m stupid. Yep. Way to go . 👏👏In reality, I’ll leave that to the experts — whom, notably, are not Musk. There’s some really smart people at SpaceX, doesn’t mean Musk is one of em.
Even if Musk somehow gets out of this, he will still have plenty to be concerned about. IE: SEC investigations into his own actions regardless of the FTC being gutted, which may prevent the whole MAE as well. This might be the political own goal if FTC doesn’t have enough power to declare an MAE in some way as related to the restrictions above, as this was done by the Supreme Court.
In short, this is getting stupidly complicated, blame Musk for digging up all the dirt they can. And he’s trying to confuse people further, but hey no surprise.
