back to article Musk tries to stall Twitter takeover trial following whistleblower claims

Elon Musk's lawyers issued a double whammy this week in the ongoing quest by the world's richest man to cancel his own proposed takeover of Twitter. On Tuesday the billionaire's legal eagles asked a Delaware court to delay [PDF] the forthcoming showdown between him and Twitter. A five-day trial is scheduled to begin mid- …

  1. aerogems Silver badge
    FAIL

    If I walk up to a random house, offer the people living there 20% over the market value in cash, and tell them I don't need a contractor to inspect it or anything like that... I don't get to accuse the former owners of somehow tricking me into buying the property when I find out it has a massive termite infestation.

    Musk had his chance to go over Twitter's operations and books with a fine tooth comb, and anyone who can finance a $44bn deal can certainly afford to hire a couple accountants and lawyers, but he signed it away. Then he ran out of cocaine, or whatever he was on, woke up sober one morning, had a coyote ugly moment, and presently is trying to gnaw off his own leg to get out of the deal.

    1. gandalfcn Silver badge

      They should start every single statement in court with

      "As your client waived his rights why are you now demanding he has any. To continue, your honour, we ........ "

    2. martinusher Silver badge

      Going over the books with a fine tooth comb won't reveal anything. What's going on here is that Twitter's trying to perpetrate a fraud against both current and potential investors (Musk). Saying that maybe he should have detected the fraud and its too late, the fraudsters have their mark lined up, doesn't legitimize the deal.

      Or maybe these are just the rules of modern business. Its not about honest transactions, its all about making that big score.

      1. Paul Crawford Silver badge

        Its not about honest transactions, its all about making that big score

        Is that not Musk himself?

      2. Casca

        Musk thought he made a big score and waved hes rights. Its all on Musk.

        1. Anonymous Coward
          Anonymous Coward

          I think there's also the thought of helping his buddy Trump get online again in the background. Trump's denying it, of course, but the the truth about his Truth thing is that it's (a) not doing very well and (b) even the faithful are not thronging around him as much as he needs them to to milk them.

          The latter is actually a shame, because the more Trump milks them for every lawsuit he's exposed to, the less they have left to spend on Republican election campaigns because it's 100% certain Trump won't give them a dime of the loot he has so gathered. I wonder how long it will take them to finally realise that they've shot themselves in both feet with Trump but hey, that's what you get too for blocking gun laws..

          1. gandalfcn Silver badge

            IQ45's Truth Social’s business plan is going tsup and G00gle still hasn't approved Truth Social.

      3. eldakka Silver badge

        > . What's going on here is that Twitter's trying to perpetrate a fraud against both current and potential investors (Musk).

        The problem you have here is this is not at all what is happening.

        Twitter did not shop itself out for sale. It did not produce sales brochures or purchase information or investment information.

        It was sitting there minding its own business, doing its thing, making no representations beyond legally-mandated SEC filings. And lo and behold, Musk wanders up and offers to buy them. A totally unsolicited bid. Since Twitter has made no, none, nada, zero, zilch, representations to Musk with respect to their business, it's not possible for Twitter to be perpetuating a fraud against Musk's unsolicited takover. I mean, that is what would ahve happened during a regular due-diligence period, Twitter would make representations to Musk - via providing documentation, access to books, and so on. But since Musk waived that, he doesn't even have that to fall back on, he explicitly refused to receive any representations from Twitter about their business.

      4. Anonymous Coward
        Anonymous Coward

        What fraud have they perpetrated?

        Please provide evidence (a Musk tweet isn't evidence).

        1. Anonymous Coward
          Anonymous Coward

          There is some excellent legal analysis online (I think someone has already shared the link) that utterly shreds Musk's claims in meticulous detail. His problem is that he signed an 'as is' contract, i.e. sans a shred of due diligence and is now trying to escape from it because his investors have told him in no uncertain terms via his stock price that he has to grow up.

          Not a chance of either, methinks..

      5. Flocke Kroes Silver badge

        If you are looking for securities fraud ...

        Board members are supposed to disclose share purchases and sales because of the insider knowledge they have. So are major share holders. Elon bought enough shares to qualify through a bunch of shell companies and continued to buy in secret at an artificially low price. Apparently he was 'late' declaring his purchases with the SEC.

      6. gandalfcn Silver badge

        I see someone doesn't understand what due diligence means.

        "In financial setting, due diligence means an investigation or audit of a potential investment consummated by a prospective buyer. The objective is to confirm the accuracy of the seller’s information and appraise its value."

        "Generally, the legal terms in a contract or other purchase agreements express specifics of the transaction. These may include the length of the investigation period, items to be examined, and the expiration date.

        Audit tasks are subject to various situational contingencies. They typically include auditing financial records, evaluating assets and liabilities, and assessing operations or business practices."

        "Due diligence undertaken in mergers and acquisitions is vigorous, time consuming, and complex.

        Incomplete or improper investigation is actually one of the major culprits of why even the biggest M&A deals failed.

        Therefore, it is critical for firms to closely investigate potential investments and understand the business’ true value. A firm may otherwise waste a great deal of their valuable assets and time completing the transaction."

      7. gandalfcn Silver badge

        " What's going on here is that Twitter's trying to perpetrate a fraud against both current and potential investors (Musk)." When someone attempts a hostile take-pver (Musk) but waives due diligence, the only fraud is Leon, as usual.

      8. aerogems Silver badge

        If Twitter had approached Musk looking for a sugar daddy to buy them out, that argument might hold some water. However, Musk approached Twitter with multiple buyout offers, the first couple of which Twitter rejected (rightly) figuring he wasn't actually serious. Musk also "forgot" to notify the SEC in a timely fashion when he started hoovering up large quantities of Twitter stock. Again, if I approach someone and offer to buy something from them, completely unsolicited and basically sight unseen, I don't then get to say that I was somehow tricked or defrauded when it turns out I bought a piece of shit.

        His entire argument is a post-hoc. He started off tweeting how he was somehow uniquely qualified to solve the bot problem on Twitter, and now suddenly the bots are so bad that he can't buy it and he's trying to incorporate these claims into that sudden change in tact retroactively.

  2. Flocke Kroes Silver badge

    Found some of the money

    If Zatko can demonstrate securities fraud he could get a percentage of the fines. He wants Musk's lawyers to do his work for him. The problem is Zatko's complaint (which predates Musk's attempt to purchase) and Musk's excuses are not about the same things. For Musk to use Zatko's complaint at all his lawyers have to convince the judge to let them change Musk's pleadings. If they get over that hurdle it is all steep up-hill sailing into the wind from there. If you want to understand Musk's chances (a little more than zero) here is an accessible piece written by a law professor.

    1. DS999 Silver badge
      Thumb Up

      That article you link provides a great explanation

      And is very accessible for non lawyers, or at least non lawyers like me who took a few elective law classes in business school to learn the basics but haven't had exposure since.

    2. Jellied Eel Silver badge

      Re: Found some of the money

      I'm still curious why this is considered different to HP vs Autonomy. Seems like evidence of fraud should be grounds to terminate a deal. Or are the lawyers saying 'tough, detect the fraud after your purchase, then litigate'.

      1. shah27

        Re: Found some of the money

        in HP vs Autonomy the owners made false claims on their books about their product. Here it is somewhat more complicated.

        Elon made what could be considered a stupid decision (though I suspect his willingness to buy twitter and offering up to $1billion dollars was to stop Twitter exec board from using the poison pill method) but has the right to walk away from a company that is found to have broken the law. If however, these claims about Twitter are false then Musk will likely be compelled to pay the $1billion along with whatever additional fines there may be.

        1. Flocke Kroes Silver badge

          Re: Found some of the money

          Even Elon does not expect to get out of this for a measly $1B. He has already sold nearly $15B of Tesla shares on top of the $12.5B margin loan.

          1. gandalfcn Silver badge

            Re: Found some of the money

            He thought it would be a pushover and he could make a quick buck, his m.o., which is why he waived due diligence which is a lengthy process. Then the realisation kickled in that he had trotally fcuked up/

            Tuff! He believes he's the macho wheeler dealer like his mate IQ45, the professional bankrupt.

        2. Fred Flintstone Gold badge

          Re: Found some of the money

          He may also find himself on the hook for the massive loss in value of Twitter shares since his shenanigans began if he doesn't buy Twitter at the contractually agreed share price.

          I think he truly has bitten off more than he can chew here, so it'll be interesting to see how the US legal system will deal with this as it's über rich guy versus shareholders.

          I suspect that it will at least stimulate popcorn sales :)

          1. Ken Hagan Gold badge

            Re: Found some of the money

            interesting to see how the US legal system will deal with this as it's über rich guy versus shareholders

            Expensively?

          2. John Brown (no body) Silver badge
            Joke

            Re: Found some of the money

            "I suspect that it will at least stimulate popcorn sales :)"

            As is often said, follow the money. Who is the biggest popcorn tycoon? Does s/he need a new yacht? Who has been buying popcorn shares recently?

          3. Michael Wojcik Silver badge

            Re: Found some of the money

            it'll be interesting to see how the US legal system will deal with this as it's über rich guy versus shareholders

            The Delaware Court of Chancery is not impressed with rich guys. They deal with rich guys, and their armies of lawyers, all the time.

        3. aerogems Silver badge

          Re: Found some of the money

          If, and it's a big if, but if Twitter's board and management have been knowingly supplying falsified info to investors... they are in some deep legal do-do with the SEC and investors. However, if you look at the contract, Twitter clearly had it's legal team involved from the very start and Musk decided to just wing it because in his mind he's always the smartest person in the room. There are only a couple specific ways in which the contract can be terminated. The $1bn "breakup fee" that was oft reported only applied if Musk couldn't secure the financing for the deal despite his best efforts. Since Musk's net worth is still greater than the total purchase price of the deal, he could finance the deal entirely on his own, so that clause is completely irrelevant.

          My personal hope, though it's not on offer, is that both sides lose. Musk is forced to pay $44bn, but instead of the money going to Twitter, he has to donate it to different charities and he can't take any kind of tax write off for it. The UN estimated it could effectively solve world hunger for around $5bn, and Musk once promised he'd donate that much, though he's yet to follow through. Imagine how much good $44bn could do. You give $1bn to a charity like the Red Cross, it'd probably be multiple years worth of operating budget.

      2. Anonymous Coward
        Anonymous Coward

        Re: Found some of the money

        Because in the HP vs Autonomy they found that there was fraud, they were stating that there were more sales and doing fraudulent accounting to make it look like sales were higher and projected earnings greater.

        There is no fraud here, Musk is trying to say there are lots of bots, more than they say, There are, they say there are, but the bot value that they have 5% is not the number of bots, its a value representation of the number of bots in their estimated number of users that they could possibly get money from through various means. With this number of users being a metric that they have specified. AKA their margin of error.

        As its their own metric, with their own parameters, it cant be fraud. If the value isn't exactly 5% if its more, oops, honest mistake.

        Its a metric that they can make what they want, and will make it as accurate as possible as it goes in the SEC filing.

        I'm sure that Musk has 'evidence*' that you are a pedo guy, he could tweet it, does that mean you should be in jail?

        *Looking for some of that evidence now, hes sure he could find it if given a few months, but you should be locked up, 'cos.

        1. Jellied Eel Silver badge

          Re: Found some of the money

          As its their own metric, with their own parameters, it cant be fraud. If the value isn't exactly 5% if its more, oops, honest mistake.

          So those sales figures. When we said it was only 5% of revenue, it was an honest mistake..

          Seems like people expect Musk to be spending $44bn sight unseen. Fake user/bot numbers might not be an official GAAP metric, but user numbers are a pretty key element of the valuations for social/new media companies, especially if your business case relies on monetising those users.

          So IMHO, it depends on how far out the 5% is in Twitter's public filings, because that's material information that affects valuation, and stock price. If that's grossly underestimated or reported, well, explaining that might prove problematic.. like in most fraud cases.

          1. gandalfcn Silver badge

            Re: Found some of the money

            "Seems like people expect Musk to be spending $44bn sight unseen." LOL

            He waived due diligence, which ,means he wasn't interested in looking. The total opposite of what you are saying.

            LOL.

          2. iron Silver badge

            Re: Found some of the money

            Musk offered, nay DEMANDED to be spend $44bn sight unseen.

            It is right there in the contract, in legal black and white.

          3. Anonymous Coward
            Anonymous Coward

            Re: Found some of the money

            Again, you do not appear to understand what the numbers represent.

            Either like you. Musk doesn't understand, or, he does and is hoping the Judge doesn't (probably realised they do, hence the change), but is also trying to get the court of public opinion by betting on his followers not understanding and hoping that misrepresenting numbers that they will not look up to try and fact check what he says is correct, just like some orange man does.

            There are around 436m active users on twitter, of those, 237.8m of them are thought to be monetisable, of that 237.8m, it is estimated that there will be 5% bots, incorrectly identified as human that cant be monetised in some way.

            That 5% isnt actual revenue, the number of users, isnt actual revenue, its potential sources of revenue.

            For it to be fraud, there has to be intent, if there is an error due to incorrect data, that isn't fraud. But its extremely unlikely to be incorrect, as Twitter have picked a metric of their own to put in the SEC filing, it would be stupid to make up the data when its their own metric.

            Musk wanted to buy twitter, for the lolz, hes the richest man in the world, $44B, what ever, the purchase price has 420 in it LOL. He didnt care about the details, he wanted to buy it, because he could, twitter were not selling, but Musk wanted to buy so by offering a premium over the current price forced a vote.

            When you have a god complex, with a large following like he does, you just keep doing shit that you think people who appear to worship you will find amazing, wow he will buy twitter, allow free speech, clean up the bots (oh no, are there lots of bots on twitter, i thought you didn't know there were many)

            1. Jellied Eel Silver badge

              Re: Found some of the money

              Again, you do not appear to understand what the numbers represent.

              Sure I do. It's a variation of the old accounting joke, what is 1+1?

              That 5% isnt actual revenue, the number of users, isnt actual revenue, its potential sources of revenue.

              Again you seem to miss the point. Investors value businesses based on a bunch of metrics. Some are standardised, some are not. Social media and new media businesses fixate on users, active users, subscriptions etc because those translate, or could be translated into actual revenue, or future value. If these tech companies were valued the old fashioned way, ie multiples of earnings, they'd only be worth a small fraction of their current valuations.

              Tech companies willingly promote these wild valuations because if they don't, the companies are pretty much worthless. Which is why I think this case is important.

              For it to be fraud, there has to be intent, if there is an error due to incorrect data, that isn't fraud. But its extremely unlikely to be incorrect, as Twitter have picked a metric of their own to put in the SEC filing, it would be stupid to make up the data when its their own metric.

              But they've put the metric in their statutory filings. If they know this to be materially incorrect, then it's arguably fraudulent. So publish 5%, internally there's evidence they suspect it's >25%. That would show intent to mislead. There's still probably some wriggle room, ie financial engineering is huge business for accountancy & management consultancies, and is used to polish many a turd. And it's a turd that's blown back on many execs when their financial engineering has been demonstrably unsound, and intentionally misleading. See the origins of Sarbanes-Oxley for more info.

              Musk wanted to buy twitter, for the lolz, hes the richest man in the world, $44B, what ever, the purchase price has 420 in it LOL.

              I doubt it. I don't think even Musk is that stupid, and a company like Twitter is probably closer to his core passion, ie vapor.. I mean software. He's also only the richest man in the world on paper, and his paper is in a spot of bother at the moment. Which is also the amusing part because there's a whole house of cards his stock is underpinning. Or perhaps that's the point, so if Musk has to cash out to raise the purchase price, he'll probably no longer be in control of Tesla, SpaceX etc.

              But it's all been rather amusing. I suspect there's a fair intersection between Twitter and Tesla fanbois, so watching the left vs right flaming has been entertaining. It's also raising the question of how realistic tech company valuations have been, and that's a pretty enormous bubble that's due to pop.. But will also cause some economic pain given the amounts of investor money that have been poured into these paper tigers.

              1. Charlie Clark Silver badge
                Stop

                Re: Found some of the money

                If these tech companies were valued the old fashioned way, ie multiples of earnings, they'd only be worth a small fraction of their current valuations.

                And what would be wrong with that? Would be nice to see it applied to Tesla. It's arguable that the majority of tech companies are engaged in systematic fraud with the collusion of the VCs, investment banks, exchanges, etc. Saying these companies are special is like selling magic beans or snake oil.

              2. Anonymous Coward
                Anonymous Coward

                Re: Found some of the money

                Yes, it would be nice if things were actually valued based upon their earnings and not crap by 'pricing in' the next 10 years of growth in another universe with no competitors and them having 99% margins. But that has nothing to do with Musk and his bid for Twitter.

                They have published 5%, if internally they believe what they have publish in their SEC filing is really over 25%, they have bigger problems than trying to get Musk to buy.

                Yes, on paper, doesn't stop him believing he can do anything, when riding high (in both senses of the word). He has problems because as you say, he is mostly on paper, but he he has used that paper for other purchases, his stock value has gone down so now doesn't have enough to cover everything without actually selling some or finding others to dump his idiocy on.

                I find Musk amusing and annoying, I always had this feeling of dislike for him for some reason, for many years, but came over that at the start because of what was trying to be accomplished, but just cant anymore.

                I don't use Twitter.

          4. Charlie Clark Silver badge

            Re: Found some of the money

            HP's case was admittedly tenuous but it appears they were able to convince the court that they'd been misled, despite fairly convincing evidence that HP's board was just as gung-ho as Musk. However, this is not a case about fraud and isn't being tried in the same kind of court.

            No, you ignored the point about the metric being whatever Twitter wants it to be. There is no standard definition of "monthly active users" and, thus, no way of auditing it. The same is true for "real" users versus "bots" and WeWork had similar made up numbers for its business: the boss did end up getting a very nice severance package but there was no case of fraud. Had Musk cared he would have had it written into the contract, otherwise the legal principle of caveat emptor should apply.

            1. Jellied Eel Silver badge

              Re: Found some of the money

              However, this is not a case about fraud and isn't being tried in the same kind of court.

              Correct, and yet.

              No, you ignored the point about the metric being whatever Twitter wants it to be.

              That's your interpretation. Twitter wants it to be approximately 5%, because that's worth $44bn and a large payout to it's execs. But Twitter has told the market it's 5%, based on the metrics or measurements they've defined. But I said-

              Fake user/bot numbers might not be an official GAAP metric, but user numbers are a pretty key element of the valuations for social/new media companies, especially if your business case relies on monetising those users.

              There is no standard definition of "monthly active users" and, thus, no way of auditing it.

              Again, yet. And it could be pretty trivial. Much of it could be done with good'ol RADIUS accounting. Any enterprise should be able to show how many users it has. Again, this is a common metric in company filings. Active users should also be trivial, so how many of those accounts have logged in in the last week/month/quarter. You could go further, and measure if those accounts have performed activity, ie bits sent/recieved, tweets sent, links clicked etc. Again all stuff that should be already monitored by any sane social media company. And again, is part of typical company filings.

              Bots or spam accounts would be trickier to define, and protect against. But shouldn't be impossible for any competent software company, ie de-duping accounts, checking for multiple logins, accounts that only exist to spam garbage. Of course that would include many corporate accounts, but those at least seem to be charged for that privilege.

              But Twitter did/does this, and picked 5%.

              The rest seems to be mostly noise from those with 140 active brain cells or less. The kind of people that believe everything they read on Twitter is 'Russian Misinformation', especially if it can be tangentially related to Trump. So basically the kind of people that seem to think that Musk was going to drop $44bn on a company and completely waive any kind of due diligence. Even though both Twitter and Musk's filing disagree with that viewpoint.

              So the trial will boil down to if the information provided by Twitter during contract negotiations was accurate and in good faith, or if it materially misrepresented the state of Twitter's business. Which currently has been obscured by a huge cloud of FUD. Musk says Twitter witheld or obstructed his teams attempts to test the accuracy and reliability of data in public filings, and that he'd relied on for his valuation.

              But such is politics. Personally, it's a win-win situation because it'll either show social media companies and their cheer leaders for the shysters they are, or bankrupt Musk.. Especially as there's other litigation rolling on around Musk's business ventures, eg his Solar City dealings. But there will be blood, so Musk's ventures, like Tesla, Sap-X and StarLink go ch.11 or ch.9 because the cash machine gets unplugged, Or if the tech bubble bursts, a lot of investors are going to lose a lot of money. As will Musk's lenders, especially as Musk is arguably the world's biggest debtor. At least he does seem to have that in common with Trump's historical ways of working the banking sector.

              1. Charlie Clark Silver badge

                Re: Found some of the money

                So the trial will boil down to if the information provided by Twitter during contract negotiations was accurate and in good faith

                Unlikely, because Musk explicitly waived his right to due diligence opting for "to buy as seen". There is some wiggle room over information to be provided. as other commentators have pointed out, but this is one of the points about buying companies: there is no statutory protection.

                But such is politics. Personally, it's a win-win situation because it'll either show social media companies and their cheer leaders for the shysters they are, or bankrupt Musk

                I'd like to see Twitter dead and buried – though something equally pointless will no doubt replace it – but I can't see this leading to Musk's bankruptcy. At least not in any meaningful way. There are still enough saps eager to drink his kool aid and that means he can raise capital against the value of his shares in Tesla, Starlink, et al. What I would like to see at some point is an enforceable gagging order on him when it comes to unfounded ad hoc public pronouncements about companies…

                1. Jellied Eel Silver badge

                  Re: Found some of the money

                  Unlikely, because Musk explicitly waived his right to due diligence opting for "to buy as seen". There is some wiggle room over information to be provided. as other commentators have pointed out, but this is one of the points about buying companies: there is no statutory protection.

                  Don't you see that those statements are somewhat contradictory? So where is this 'explicit waiving of rights', and if it really were sight unseen, how can there be any wriggle room? Again that seems to be the point of the case. Twitter's complaint makes the point that there was wriggle room, ie Musk could sup from the firehose of data it provided. Musk says that data was insufficient, and he needed more.

                  There may not be consumer type statutory protection, but there are contracts, and if the terms of those contracts are in dispute, courts to try and settle those. I do think there's a lot of buyer's remorse, but based on docs I've seen, I don't think the waiver of rights is as clear cut as the anti-Musk crowd makes out. Especially given the original plan was for Team Musk to raise capital from external investors/lenders, who's first question would be 'what are we buying, and how are we protected?'.

                  Which is why the court case will get interesting, especially if it's going to be televised. As I understand it, much of the good stuff is under seal so there's a lot of speculation around exactly what is in the HoT.

                  At least not in any meaningful way. There are still enough saps eager to drink his kool aid and that means he can raise capital against the value of his shares in Tesla, Starlink, et al.

                  That's where I think the house of cards comes in. Musk's $200bn fortune is mostly based on the value of his equity in his companies. He's borrowed heavily against his Tesla stock, so probably limited in the amount he could sell before triggering margin calls. So potentially having to find $44bn, plus pay back whatever loans he's taken to fund SapX, StarLink, or what happens if stock's been pledged to secure loans for those companies and become due. Both his space ventures are private, so finances aren't exactly transparent, especially trade between companies. We've seen reports that they're on shakey ground though, so an inability to launch Starship means an inability to launch StarLinkV2 birds. Or just how those are being funded, StarLink's been busily launching many rockets, but I'd be very suprised if it's generating anything close to the revenues needed to fund those, or required future launches. Those launches are fuelled by debt.

                  What I would like to see at some point is an enforceable gagging order on him when it comes to unfounded ad hoc public pronouncements about companies…

                  I dunno, there is some entertainment value. Like his recent claims that Tesla will be launching his robo butler next year. Quite a leap from a guy dancing in a body suit to an actual android that could perform anywhere close to the claims made. But normal for Elon. No Cybertruck, no semi, no roadster Mk2, no Hyperloop, no weekly Starship intercontinental launches, or trips to Mars.

                  1. Anonymous Coward
                    Anonymous Coward

                    Re: Found some of the money

                    The wiggle room would be the part where twitter needs to provide the information that Musk needs to complete the transaction. Not information that should have been obtained and gone over before signing.

                    If he is trying to find money from 3rd parties and they want assurances that twitters bots are in total less than 5% (not what that number is about), too bad, but twitter gave him access to info to do that, to ensure that they wouldn't fall under that clause.

                    If 3rd parties will not invest money because because he didn't do due diligence before hand, that's his problem, funding should have been secured before signing. He has the money (sell some stock that isn't leveraged), he is able to close the deal.

                    Musk lives on another planet in another reality where what he thinks should be real and is real, and 1 year is around 10 or just a joke.

                    1. Jellied Eel Silver badge

                      Re: Found some of the money

                      The wiggle room would be the part where twitter needs to provide the information that Musk needs to complete the transaction. Not information that should have been obtained and gone over before signing.

                      Again, this is why it's heading to court. Musk says Twitter didn't provide the information. Twitter says they eventually turned on the firehose. The devil should be in the details. So one set of pundits claim to know exactly what was in the HoT, and that Musk entirely waived his right to any due diligence. If so, that's a spectacularly dumb decision, even by Musk standards in a $44bn transaction.

                      But-

                      https://corpgov.law.harvard.edu/2022/07/14/twitter-vs-musk-the-complaint/

                      8. Musk’s strategy is also a model of bad faith. While pretending to exercise the narrow right he has under the merger agreement to information for “consummation of the transaction,” Musk has been working furiously—albeit fruitlessly—to try to show that the company he promised to buy and not disparage has made material misrepresentations about its business to regulators and investors.

                      So Twitter's complaint states there was some right to perform due diligence, and the case will presumably boil down to whether Twitter complied with that right. Musk is, of course arguing they did not, and thus he can walk away from that deal. If you ignore that 'narrow right', then sure, Musk has no real defence.. other than standard contract law and whether any of the terms are fair and binding. It's quite common for contracts to be signed, then disputed because conditions in contracts aren't legally binding. It's one of the reasons why lawyers exist.

                      The other curious element is if the timing is fair. Twitter obviously wants to force this through because they stand to make a lot of money. But everything seems to depend on this 'narrow right', which is where it'll get interesting. So both parties will present their experts to argue over the spam metrics, and we'll get a peek behind the curtain. But only 5 days for both sides to make their case.

                      Not being a lawyer, I'm also curious what appeal options there could be. AFAIK, they're very limited. But there are other options, ie the SEC grows a pair and says 'not so fast, explain this 5%', it being a number prominently used in Twitter's public filings.

                  2. Charlie Clark Silver badge

                    Re: Found some of the money

                    Especially given the original plan was for Team Musk to raise capital from external investors/lenders, who's first question would be 'what are we buying, and how are we protected?'

                    That's completely irrelevant in the contract between Musk and Twitter, which is what the case will be about. Really, the court only has to decide whether Twitter fulfilled the terms of the contract or not. Waiving due diligence almost entirely invalidates Musk's arguments. I guess we'll find out more in a month or so from now.

                    1. Jellied Eel Silver badge

                      Re: Found some of the money

                      That's completely irrelevant in the contract between Musk and Twitter, which is what the case will be about.

                      Not necessarily-

                      71. Twitter had entered into a confidentiality agreement with Musk to share non-public information in preparation for post-closing transition, and convened an in-person meeting with Musk and his team on May 6, 2022. Among the topics of discussion were mDAU and spam-related subjects. In advance of the meeting, Musk’s bankers circulated an agenda with items related to users on the Twitter platform, including: “How do you estimate that fewer than 5% of mDAU are false or spam accounts?” Twitter’s representatives addressed that question at the meeting, summarizing the company’s process.

                      Given the deal really revolves around those mDAU, and if Musk would really be able to monetise them.

                      Really, the court only has to decide whether Twitter fulfilled the terms of the contract or not. Waiving due diligence almost entirely invalidates Musk's arguments. I guess we'll find out more in a month or so from now.

                      Again, that assumes he actually did, and could. See also-

                      50. Subject to certain conditions, including entry into a confidentiality agreement, Twitter must provide Parent and its advisors with “reasonable access” to information about its “business, properties and personnel” as defendants “reasonably” request. Id. § 6.4. The information requested must be for a “reasonable business purpose related to the consummation of the transactions contemplated by this Agreement.” Id. (emphasis added).

                      Determining mDAU would seem perfectly reasonable, no? So question would seem to be what exactly 6.4 said, and if Twitter actually provided 'reasonable access'.

            2. Michael Wojcik Silver badge

              Re: Found some of the money

              There is no standard definition of "monthly active users"

              It's a minor point, but the metric under dispute1 is "mDAU", for "monetizable Daily Active Users", aka "addicts who might look at advertisements". Not "monthly" anything.

              DAU is something Twitter can measure (well, they can measure distinct accounts each day, and refer to the average of that count as "daily active users", even if the term is not precisely correct). The "monetizable" part is going to be the result of some set of heuristics which are certainly going to be debatable. That gives Twitter quite a bit of latitude in determining their mDAU figure.

              More importantly, though, it really doesn't matter, because the bar for finding Twitter in violation of the agreement is very high. Any number of actual damn lawyers have explained this, as any number of links posted in the comments sections of the various Reg stories on the topic can attest. See Masnick's or Stone's analysis, for example.

              The Musk defenders need to come up with a new argument. The "but gosh wow Twitter liiiiiiied!" one is thoroughly trashed.

              1Notionally, that is. I don't think anyone actually involved in the case, or any competent analyzers of it, believe this is a real point of contention.

      3. iron Silver badge

        Re: Found some of the money

        Unfortunatly the only fraud involved is the one suing Twitter.

    3. julian.smith
      Mushroom

      Re Musk's chances

      Matt Levine from Bloomberg has been all over this from the beginning.

      TL;DR Musk's chances are near zero

      His best outcome is the $1 billion break fee

      His most likely outcome is specific performance, forced to buy for $44 billion

      Couldn't happen to a better person.

      1. F. Frederick Skitty

        Re: Re Musk's chances

        "His most likely outcome is specific performance, forced to buy for $44 billion"

        Which would likely lead to him having to sell his stakes in nearly everything, as the original deal to buy Twitter involved borrowing huge sums with only a relatively small part of the funds provided by Musk. Those investors and lenders have now withdrawn, so he'll have to pony up the full amount from his own resources. Since it will be a buyer's market, he'll hopefully lose everything.

        1. DS999 Silver badge

          Re: Re Musk's chances

          His net worth is somewhere north of $200 billion. He wouldn't come close to "losing everything" unless the stock market totally crashes in the meantime. He'd just be forced to sell a bit more of his Tesla holdings, but he'd still be left holding most of what he did before his ill fated tweet about buying Twitter.

          1. F. Frederick Skitty

            Re: Re Musk's chances

            That's the theoretical value of his assets. Trying to turn that into liquid funds will be at what the market is prepared to pay, which will be substantially less, since any buyers will know they can get a bargain due to his circumstances.

            That's why a lot of otherwise wealthy people or companies rely on loans for big purchases such as takeovers. Trying to dump a lot of shares or other illiquid assets is always going to take a big hit on their theoretical value. Paying interest on a loan is cheaper than that prospective loss.

          2. Anonymous Coward
            Anonymous Coward

            Re: Re Musk's chances

            No, that's the current market value. I'd say he's only worth around a couple of hundred million and that's if he was clever enough to own real estates and gold.

            1. DS999 Silver badge

              Re: Re Musk's chances

              You idiots think he couldn't sell his Tesla shares for even 1% of market values? This isn't some illiquid family business like Trump Inc., this is a publicly traded company that has good sized float. Throwing $10 billion of stock onto the market will cause the price to dip a bit, but maybe 10% at most not 99%!

              1. Dave@Home

                Re: Re Musk's chances

                You forget market sentiment and inertia - if everyone knows you're dumping stock they'll force the buy price down as low as they can to maximise their chunk of flesh.

  3. jvf

    yawn

    zzzzzzzz

  4. KittenHuffer Silver badge

    Can they please hurry up .....

    ..... my popcorn is starting to get cold!

  5. Charlie Clark Silver badge
    Stop

    Not a whammy

    Elon Musk's lawyers issued a double whammy… Maybe you should look up the definition of "whammy".

    Inasmuch as they're do not stem from the lawyer's work and are already public, it's difficult to see this as anything other than a lame stalling tactic.

  6. Howard Sway Silver badge

    provides "additional bases" to terminate the merger plan

    No it doesn't, you don't generate ways of getting out of a legally binding contract just by flinging lots of shit around. The only thing that matters is what the words on the contract say.

    1. gandalfcn Silver badge

      Re: provides "additional bases" to terminate the merger plan

      Especially after waiving due diligence.

  7. Not That Andrew

    From my understanding from threads by alleged legal & financial experts on Twitter, Trump appears to have agreed to waive all due diligence & rights when buying Twitter. Basically he was buying it "Buyer Beware".

    1. Charlie Clark Silver badge

      Trump? The orange one may have his fingers in a great many pies but so far he's not been involved in this.

    2. DS999 Silver badge

      Despite all the evidence Trump is nothing like the savvy businessman he claims to be, even he isn't dumb enough to make a huge buyout offer that waives all due diligence.

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