API rate limits at the core of Elon Musk’s decision to ditch Twitter A dispute over API rate limits lies at the heart of Elon Musk’s decision to bail out of his planned acquisition of Twitter. Musk has made several public statements regarding his desire to know how many Twitter accounts are run by bots or are otherwise inauthentic, as he feels the number of dodgy accounts impacts the company's …
"A dispute over API rate limits lies at the heart of Elon Musk’s decision to bail out of his planned acquisition of Twitter."
A lack of money caused by a mix of his own limited knowledge of the markets and considerable hubris caused him to drop the sale. He tried to leverage one of his companies to buy another and his shareholders sensibly said NO! after their share price dropped.
Elon isn't as smart as he thinks he is.
Conceding that, perhaps, Twitter were too wary in providing a hostile person with unfettered and unlimited access to their core asset - the delay was 7 days before it was apparently rectified according to this report. Sufficient, perhaps, for complaint and a similar delay in Mr Musk's acquisition timetable.
But reason to ditch? Makes no sense. At best it's what unfettered, unlimited access would subsequently throw up that counts.
Which is still confusing to me as I thought Elon had waived due-diligence. Maybe a real M&A specialist could explain what's going on to us lesser mortals.
Matt Levine from Bloomberg is the man. He's been documenting the legal and financial issues of Elon's Twitter brain farts for a while.
He has a (sort of) daily email. You can get it here:
https://www.bloomberg.com/account/newsletters/money-stuff?source=NLshare
He also has high quality, well qualified information on crypto and other interesting financial matters.
I'm perhaps being a touch silly, but the more I read about Elon the more I'm reminded of Horatio from the game Endless Space. A multi trillionaire who decided to go off into space because he was bored. He found a perfect cloning machine and decided he should populate the universe with the most beautiful and amazing people possible. Himself.
I can so totally see Elon looking over a whole bunch of clones of himself and thinking "Perfect!"
So basically bullshit.
Goldman Sachs valuation model of Twitter is GS property, not Twitter. It's not Twitter's to give. The GS conclusion is what they paid for and it's what he could be given and was.
As for his API rate limit, his "unreasonable time" is 7 days. Does he imagine a judge would buy that as unreasonable?
Musk's attempt to back out of the deal, was in May 16th, a whole MONTH AND A HALF before he asks for an increase API usage limit!
He's screwed, if he's locked into the deal, he has to conclude the deal. It doesn't matter that his share price crashed, that's not Twitters shareholder's problem, that's his. He should have thought about these scenarios before trying to buy Twitter.
Musk has signed a contract with a specific performance clause and his only way out of paying $44B is to prove Twitter breached their side of the contract. Part of the contract is that Musk can ask anything, including questions that Twitter cannot answer. It will be up to a judge to decide if Twitter's responses were adequate. The bot numbers are going to be a difficult point for Musk as his publicly announced reasons for buying Twitter included doing something about the large number of bots. Most likely, a settlement will be agreed before a verdict is reached with Musk paying something between 1 and 44 billion.
Musk is already in breach of the non-disclosure and non-disparagement clauses so it will not be a clean fight. If he has taken advantage of Twitter's lowered share price to quietly buy shares via proxy again he will be in even deeper shit.
Unless you have specific info on that contract, Musk's claims all revolve around "material adverse effect" which is like the "Acts of God" clause and require something major and new.
His claims are not MAE related. Nothing magical changed between him starting this bid and now. His "sudden concern" does not make it something new or major, simply because he decided to think it and claim it was major.
He didn't price his offer in terms of Tesla share price, so the collapse in the price of the Tesla shares, he planned to sell to buy Twitter shares, is not Twitter's problem. It also does not count as an MAE item because he did not word it that way in the contract.
As to a settlement, if Twitter accepted less than $44 billion, the shareholders would have recourse against them, so they won't.
He tried backing out of the deal May 16th, by May 22nd he was doing this:
Commentard: "If 25% of the users are bots then the Twitter acquisition deal should cost 25% less."
Musk: "Absolutely," i.e. he set the lowest bar, based on his new exaggerated 25% claim at $33 billion.
What an idiot. He should have realized Tesla shares were overpriced and sold enough, or priced the deal in terms of the Tesla shares he held, so Twitter shareholders could chose to accept that risk or not. They negotiated in good faith, and no doubt if Tesla share price hadn't collapsed the deal would be done by now.
Perhaps he'll start calling Twitter "Pedos" and hope for sympathy from a Muskette jury.
> If Twitter's real user count is 25% lower than quoted, that means the advertising engagement rate is 33% higher than quoted, so the overall value will be about the same.
Sort of. The overall value is about the same until the advertisers start to demand the same price per eyeball they are paying at the moment but genuine eyeballs, not bots. So a truthful count of real users will result in an ad revenue decline of 25%.
This. Whenever I've advertised on social media I've never looked closely at the Total Addressable Market because you already sort of feel when they're big enough. I mean, if you're advertising for second homes in Tuscany you don't choose Snapchat as a platform to advertise on.
What does matter in excruciating detail is the cost per conversion, and you know that from your own data, you don't need the platform to give you that data. If you earn $3 on every $2 spent on advertising then it works, the amount of bots on a platform is then irrelevant.
We have Twitter's SEC filing.
I agree the board will not sell out for less than $44B but they might accept a settlement for less with Musk getting nothing but egg on his face.
"I agree the board will not sell out for less than $44B but they might accept a settlement for less with Musk getting nothing but egg on his face."
The settlement being the $1B "walk away fee" as per the contract. Unless anyone knows different, that "walk away fee" is due if either side walks away from the deal for any reason other than the "act of god" thingies. Whether Twitter could then go on to sue for other things, such as possibly breaking NDAs or disparaging Twitter are separate issues. But, unless someone know different, either side can walk away for any reason, even a whim, so long as they pay the $1B.
Yes many people do know different. Section 9.9 of the agreement as filed with the SEC is a specific performance clause. On Musk's side, performance means paying $44B for Twitter. Unless Musk lawyers can prove Twitter did not hold up their end (see section 7), Twitter can legally compel completion of the purchase at the agreed price. Musk's lawyers have a monumental task as Musk waived due diligence.
IANAL, but I follow a bunch on Twitter. And all of them are universally being attacked by Musk stans for pointing out the Specific Performance clause. Based on that, the lawyers are probably right.
Specific Performance is a legal term where both sides agree that money is not an adequate remedy if the agreement is breached. It's not just a termination fee: the judge can demand that one party fulfill their side of the agreement rather than pay a sum of money to make it go away.
From a Twitter perspective, $44B US is a lot more than the entire company is worth today. The board would be in breach of their fiduciary duty if they failed to enforce the agreement. They are required by law, in terms of being open to legal liability, to pursue Musk for the purchase and make sure he completes it.
I'm not going to say Musk will lose, but the inclusion of the Specific Performance clause means if he does lose, he'll be forking over more than $1B. Consider the $1B to be a floor, not a ceiling.
https://twitter.com/felixsalmon/status/1525481890643337216
That makes sense, but it does throw the whole $1B termination fee away by the sounds of it. Why is it even in the contract if it's not what it says it is? It sounds like either Musk is forced to buy anyway, at the stated price, or he has to clearly demonstrate that Twitter broke the rules and walks away scot-free. Or is this a one sided termination fee? If Twitter broke the rules, Musk gets $1B from them. But if Musk broke the rules, he still has to buy it anyway? Still confused :-/
There are ways that Musk can get away with only paying $1B, like the government stopping the sale. There are ways that Musk could get out of the deal and get $1B from Twitter, but that would require Twitter's board of directors to ask their lawyers "what is the most stupid thing we could do right now", then follow the instructions.
The board of directors are reasonably smart, they hired skilled lawyers and Musk signed a contract against the advice of his lawyers. All the Twitter board have to do to get a really big payday is jump through the required hoops - which is what they are doing even when it is not clear that a cheap hoop is actually required.
I think part of the reason for the $1B section is to appeal to Musk's Dunning Kruger syndrome.
The biggest problem with the GS report is that it's internal Twitter information, likely containing potential business models, future profitability, a SWOT analysis and a bunch of other forward looking information and strategy. Musk can have access to that once he has paid for Twitter but at the moment it won't be for Twitter to give.
At the moment it looks as if Musk doesn't have enough solid ideas about what he could do with Twitter post acquisition and hopes to get a free look into someone else's expensive report (paid for by Twitter Inc.) about what Musk could do with the company in the future. Musk is entitled to a lot of backward looking information, accounting data for instance, but he can't expect Twitter to do his post acquisition strategising work for him.
I'm also not entirely certain what he wants with the API information. He plays the standard trick of asking for more and more, hoping that there will come a point that Twitter is unable to deal with all the requests and he can argue they've haven't stuck to their side of the contract. That's dirty but pretty standard in more rocky M&A battles.
What I really don't understand is why the output of the API is so important to him (and how he thinks he can convince a judge that it is vital). The Firehose (all the tweets as they happen, in a constant stream of unfathomable size) and the Decahose (a random 10% of all the tweets in a constant stream of still unfathomable size) are mainly used for research, sentiment analysis, brand protection etc. It contains the individual tweets + geo but it doesn't contain the IP address of the poster or contains any information about people consuming Twitter posts but rarely tweeting. To get a sense of whether an account is a bot, knowing its IP address and whether it's only posting but not otherwise active is vital. I therefore fail to see how the API can be vital for establishing a percentage of bots.
But, anyway, what I think is not relevant and Musk doesn't need to convince me, he needs to convince a judge in a Delaware court who will be specialised in M&A. I expect him to struggle with that. I suspect this ends some time next year with a settlement. Musk pays Twitter Inc. a couple of billion in damages, the shareholders get nothing, and Musk doesn't own Twitter.
May 16th was when he highlighted the need to validate the public information Twitter provided, as it was not holding up to scrutiny. That wasn't 'trying to back out', that was 'hang on, those SEC filings have no supporting data'.
The 7 days to which you refer is the time it took to respond to a request for the rate limit to be removed. After those seven days completed there were still rate limits in force.
Those rate limits mean that using the API to properly validate the number of 'bot accounts' would take an "unreasonable time", which is where that phrase comes into play.
The position is thus that Musk inquired about information given to the SEC that materially impacts company value, Twitter were unable to demonstrate that this information could be relied on, and told Musk he could try and validate himself - then failed to give him the tools that would let him.
So no, to answer your question, I'm sure he does not imagine that a judge 'would buy' that seven days was unreasonable, because that's not what he's saying.
I called it the minute he started making noises about the amount of bots on Twitter. It screamed 'I'm desperate to get out of this deal' because he seemed to finally realise that he would have to give up a lot of his shares in Tesla to do the takeover (and share with 'friends' like Larry Ellison).
He wanted to get out, and using excuses like "they only gave me a PDF of the slidedeck from Goldman Sachs" just highlight how desperate he is.
I hope Twitter takes him to the cleaners and walks away with a billion in their pocket as per the agreement signed between the board and Mr I'm-the-big-Lebowsky.
Musk is 16 year old boy in a man-suit playing "less run a business". Twitter are simply the mouthpiece for any financial/political party willing to pay. Musk thought this would be an easy way to buy into a thriving business in the social media circus, a easy money spinner. Twiiter are more dodgy than family Trump and were looking for a way to make a killing off one Gen-Z's internet darlings as a figurehead. Musk actually has some adults working for him and he's finally listened to them as they told this is a huge waste of time and money. However it's too late and the whole thing now has to go to court while the two side bicker over who was right and who was wrong and how much Musk will have to cough up/surrender in order to back out of the deal he sto stupidly got himself into.
I agree with you about Musk not having matured fully. His behaviour and interests are more fitting for a fifteen-something than a fifty-something. Perhaps that's also why he appeals so much to the Musk Militia of fifteen year olds who are constantly on guard on social media to fight his PR battles for him.
I don't agree, however, with the suggestion that buying Twitter would be a money spinner. Even Musk must know that Twitter is perhaps wildly successful but hardly a license to print money. It took them about a decade to break even and even now they're hardly financially secure. I see Twitter more like a football club or newspaper. You buy them for influence or prestige but if you think they're going to make you rich then I've got a bridge to sell you.
I got the impression Musk wanted to shut down certain Bots that have been promoting Crypto scams in his name. The same has been happening on Facebook and there's been little visible effort made to address this problem.
So perhaps Musk didn't want to own Twitter as much as he wanted to know how bad the bot issue is - and it's bad. Setting up a bot is, apparently, quite easy and they can be run to create long threads of discussion from various 'users' supporting, opposing or querying a subject.
Damn expensive way to go about this, but apparently Musk thinks it's worth it.
Where I can't view tweets in my "timeline" newer than a week old, yet if I post something about (say) Amazon or Google Maps, I get a bullshit vague bot response in less than 2 minutes signed by "Joe" or "Sally" or "Beth" completely unrelated to the tweet it's "replying" to.
I wish Musk could smash Twitter like Peter Thiel smashed Gawker.
> Where I can't view tweets in my "timeline" newer than a week old, yet if I post something about (say) Amazon or Google Maps, I get a bullshit vague bot response in less than 2 minutes signed by "Joe" or "Sally" or "Beth" completely unrelated to the tweet it's "replying" to.
I'm not sure what you are complaining about. There is a widely known and perfectly suitable fix for this problem.
Delete your Twitter account and never go back. Problem solved!
I've left Twitter for Mastodon a couple of months ago and it has had a noticeable positive effect on my mental health.
It's amazing what happens if you're no longer targeted by algorithms that drive engagement with enragement and instead can just chat with strangers that you may share one or two interests with without being driven towards the things you don't agree on.
If you let any social network get to the point of affecting your mental health, you're part of the problem. By that point you should be ditching all forms of it entirely instead of looking for more of it. What exactly do you think this new service is going to do when it realises it needs to earn some real money? Or are you going to try and tell me this mastadon is not indeed burning through startup cash until such a day. Or does it have a magic money tree to support all you users of it? Is it not going to end up just as bad as Twitter if everyone followed your advice and moves to a new echo chamber?
Ehm, Mastodon is not a startup, or even a company. It's a decentralised network of individual servers. Like email is a decentralised network of individual servers.
It's precisely designed that way so a company (or an unhinged billionaire) cannot take control, sell it, buy it, or start charging for it.
So no, I wouldn't worry that the people that 'run Mastodon' might run out of cash just like I wouldn't worry about the people that 'run email' might run out of cash.
The worst that could happen is that all the people that work on improving the specs and implementations lose interest in further developing it. But then, SMTP and IMAP haven't seen major improvements for over a decade and email still works. And email servers/clients/web interfaces/apps are still seeing continuous improvements.
Mastadon has the same flaw as Twitter. It needs cash to run it. Hence why it asks for supporters on patreon. It has a CEO, it may well be a nonprofit now. How long will that last. Who will be able to afford to run the nodes it needs to function, those with money perhaps? It's never quite as simple as that. Nothing is free.
I run my own Mastodon instance ("node") in a corner on a Virtual Machine but you can also outsource the work by paying a service provider such as Spacebear or Masto.host to do it for you. Just like you can run your own email server or rely on a provider to run one for you.
Some people are happy to spend a few bucks a month to run their own node that only runs their own account, others share the cost of an instance with a couple of friends.
Considering you control it yourself there is no risk of other parties running out of cash or being taken over. The biggest risk is that people lose interest and move onto something else.
I don't think any grown up news outlet - let alone El Reg - should be reporting Musk's antics in a way that suggests we take him seriously.
Reports on his behaviour should be treated the same way we report Love Island contestants - both show the same level of self-awareness, restraint and ability to take responsibility for their actions. Astonishingly, Love Island contestants appear to be better at keeping it in their pants.
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While I don't understand the tit-for-tat legal wranglings of a billionaire and a billon dollar company, one statement jumps out...
"as he feels the number of dodgy accounts impacts the company's value"
In this way, Musk is following the markets. Most social networks are judged by the monthly active users (MAU) by the markets and therefore does set - in part - the share value of the company.
My feeling is that he should have become certain of the accuracy of the reported MAU long before letting his ego declare his intent.
Even more astounding is that Twitter are hell bent on having the deal *complete*. They want Musk to be their owner! That I don't understand. Why would you want to have an owner that intrinsically doesn't want any part of you? Surely that means that you'll be sold again, leading to more instability and uncertainty for the workforce.
More than that, Twitter share holders are happy to be bought out at well above market value. They would also be happy with a judgement or settlement well above legal fees and court costs. They were probably thinking something along the line of "the fool signed!" but did not say it out loud because they have enough sense to let their lawyers do the talking.
Who do you think "they" are?
The word "company" in business terms means the company of shareholders. Musk wasn't offering to buy them, he was offering to buy their shares. The reason they want him to go through with it is that they would then realise a good profit on their investment. Onve he's bought their shares they have no further interest in what he does.
The board originally wanted Musk not to buy them for many of those reasons, and they tried to prevent it. Musk wasn't happy with this, and neither were shareholders who don't care about the employees but do would like to receive a large payout from Musk's billions. They've successfully forced the board to drop the poison pills and try for the cash, so the board has switched to the side of the shareholders to get the most money they can and let the future of the company be the new owners' problem. If they didn't do that, shareholders interested in more money would probably sue them for failing to pursue shareholder interests. My best guess is that the thought process for most board members can best be summarized as "We give up; we'll do whatever you shareholders want now".
Correct, but there are other ways to do that. To sell right now means a payoff, but to build a successful company might mean a better return later. It's the board's decision which is best and the shareholders can replace them if they disagree. If the board had continued to repel Musk's offer on the basis that they thought the value could be higher, that would also have complied with their duty.
Weeks after finally following advice and concluding the bot number argument won't work, Musk announces that he still won't be buying Twitter, as he has discovered an annoying squeaky floorboard on the third floor of company HQ that nobody told him about before he made his offer.
Except he doesn't get to decide this. The court in Delaware (assuming Twitter is a normal US corp) gets to decide.
Note for readers on the civilised aide of the pond. Delaware is the US equivalent of Switzerland, all US corporations are registered there because everyone knows and trusts Delaware law and courts. The tiny state also relies on corporate registrations for a lot if its income - it isn't about to sacrifice its neutrality for a shouty idiot
It's not just that Delaware has an accommodating attitude to taxes (companies still pay local tax where they operate) but it has very well understood and well tested corporate law.
Its courts aren't about to give a judgement based on tiktok likes for the lulz, because that would rock a lot of corporate boats. Its the same reason a lot of international companies were HQed in London. You could trust British courts not to do something crazy - future results may not reflect this
Since the total asset value of Twitter stock tanked by ~15 billion since his commitment, having to pay 1 billion + pocket millions to (possibly) renegotiate a price is a no-brainer. In addition, the turmoil is driving Twitter even further down.
No matter how much Musk wants Twitter, he's not going to pay more than a marginal premium over the next guy who would buy it otherwise when only a piddly billion penalty is involved - that's nothing more that cost of a couple of sailing dinghies (to some freek malarket folks).
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