5 days?
"Is this your signature? Does the contract state you waive all due dilligence and agree to use your best efforts to close the deal?"
Should be done in 5 minutes.
The legal showdown between Twitter and Elon Musk is finally set to go to trial on October 17 and will last five days, according to a court schedule published this week. Twitter sued Musk earlier this month, accusing the tech billionaire of breaching the terms of an agreement where he offered to acquire the social media biz for …
A couple of fun options are to appoint a special master who would have the legal authority to do whatever Musk could, like sell his Telsa shares. (Tesla is incorporated in Delaware.)
It is almost as if Tweeting about buying Twitter to deal with the 'bots, waiving due diligence and signing a specific performance clause are not actually genius business moves.
That special master arrangement is brutal! Looks like they can come in, do the job in any way they see fit, dump the results back on to the person they're acting for. And I'm guessing they don't have to be efficient, nor mindful of long term business goals, personal plans, etc.
It would be interesting to know if a special master is obliged to limit their actions when they start impacting other people. For example, suppose the special master was obliged to start flogging off things like houses, emptying checking accounts, to raise the cash. That could have consequences for children (who themselves could end up homeless). I don't know if it could get that far in this case, Tesla shares would have to decline a bit more.
Presumably the special master could take out loans in Musk's name, which could be fun! Presumably they could also do Musk's job, like turn up to meetings in Tesla and take decisions on his behalf. And also in SpaceX. I don't know how far the special master's powers stretch; just Delaware, or the whole US? Can you imagine the fallout if the special master walks into SpaceX, sells off the Falcon 9 business to Boeing and walks out again, taking Musk's share of the sale with him?
That special master arrangement is brutal! Looks like they can come in, do the job in any way they see fit
Not entirely. IANAL, but AFAIK they can only enforce the court's decision, and obviously have to act within the law. And according to the NYP-
The 75 million available shares are worth about $55 billion based on Tesla’s current stock price. That’s well in excess of the $23.5 billion in cash Musk needs to close the Twitter deal, as the remainder of the $44 billion would be covered by co-investors and financing from several banks led by Morgan Stanley.
Not entirely convinced by that. If this is Twitter v Musk, I'm not clear on how a court or master could compel co-investors to finance the deal, unless the claim includes the banking consortium as co-defendents. If not, then Musk may still be liable to close the deal, but might not be able to fund it. Which I guess then gets interesting if it'd put Musk into defaults and bankruptcy.. Which would then have obvious implications for Tesla and SpaceX, which both have their own seperate legal identities.
But I think popcorn is certainly needed. It still feels wrong to me. I'm no Musk fan, and don't like the way people are assuming you can be forced to complete a transaction when the information you're relying on from the seller is false or fraudent. It also doesn't seem entirely right that there's pressure to try a potentially complex fraud case in only 5 days. Seems like the assumption is it's a 'simple' contract dispute, ie you agreed to the deal, so pay up rather than allowing time to test and argue the bot question.
But I suspect that's where Musk's suit goes, ie he'll sue for fraud, and appeal whatever verdict comes out of the Twitter case. So I rather doubt this will be over quckly.
Musks co-conspirators and a bank have signed agreements. They are on the hook and presumably Musk could sick his lawyers on them if they do not pay up their share for a purchase. On the other hand, they may well get off without paying a cent if Musk accepts a settlement that does not include purchasing Twitter.
The reason Musk can be forced to make the purchase is the specific performance clause. [gigantic]If[/gigantic] Twitter had been mistaken about the 'bot numbers it would not matter as they are not a part of the purchase agreement and Musk waived due diligence.
Finally there are some words from Musk's lawyers that are very important here. I cannot find the exact quote, but it is pretty much standard boilerplate: Twitter is a home to invective and hyperbole. No reasonable person would consider Musk's Tweets as a reliable source of factual information.
The popularly believed method that Twitter uses to count bots comes from a Musk Tweet. Twitter's complaint deals with it in paragraphs 74 and 75. You should treat Musk's Tweets on bot numbers like "pedo guy" or "funding secured".
It's possible the special master could set lawyers on them in Musk's name; that'd go down well, wouldn't it?!
A secondary problem Musk has with the merger is that part of the agreement involved him giving an undertaking to not publicly disparage Twitter, it's officers, etc. However, he's done that aplenty, since he signed the contract.
Hmm.. so a selection of cherries from my thought train-
53. Defendants’ ability to terminate the agreement before the presumptive drop-dead date of October 24, 2022 is extremely limited and carefully circumscribed. While there are closing conditions related to the accuracy of Twitter’s representations and warranties and to Twitter’s compliance with its covenants, there is no right for defendants to terminate unless there is a breach sufficiently significant to cause failure of a closing condition, which, after due notice, is either incapable of being cured or is not cured within 30 days after such notice.
So potentially some get-out clauses, but I still think fraud would be the biggy, although hard to prove. So basically how Twitter arrives at it's <5% figure..
64. What Musk alighted upon first was a representation in Twitter’s quarterly SEC filings over many consecutive years that based on its internal processes the company estimated “the average of false or spam accounts” on its platform “represented fewer than 5% of our mDAU during the quarter.” “Monetizable Daily Active Usage or Users,” or mDAU, is a non-GAAP metric Twitter employs to measure the number of people or organizations that use the Twitter platform.
Emphasis added. So Musk, genius that he is may have been planning his 'verified' user sca.. I mean scheme. Verify users by charging them $4.20 a month for a tick. But I think it's more important to general valuation of anti-social media companies, ie their main value is their user base. If users can't ever be monetised, obviously that's going to have a big impact on the company's value. Percentage of actual users who'd be willing to rent a check mark is a different story..
81. On May 17, 2022, Musk Tweeted, without basis or explanation, that “20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher,” adding that “[t]his deal cannot move forward” pending further analysis of Twitter’s spam estimates.
Which I think is the key point. Twitter uses magic to arrive at it's <5%. Musk uses neural nuts to arrive at >20%. Who's right? So to me, this will be the fun part. Twitter v Musk in the battle of expert statisticians, giving the world a peek behind the curtain, and with potentially massive financial implications to any other social media business who might be torturing their data with a broken Hockey Stick.
And I mention that because bad statistics and data manipulation has been a theme in stuff I'm more interested in, like the good'ol climate debate.
And finally.. May they both burn in Hull-
100. ...With his undisclosed team of data reviewers working behind the scenes, Musk had hit that limit within about two weeks. Twitter immediately agreed to, and did, raise the monthly search query limit one hundred-fold, to 10 million—more than 100 times what most paying Twitter customers would get.
Which is the data-raping, privacy violating scumfeckery that keeps anti-social media companies afloat, ie flogging their users personal data, wholesale. But also how many customers Twitter has already sucking on their firehouse, and how many may have done their own assessments wrt spam accounts.
(Oh, and Oh Dear. One of Musk's complaints was the amount of crypto spam he generates. I mean receives. Which probably isn't indicative of total spam, simply the size of his audience. So with 100m 'followers', it's an obvious target for spammers to reach a large audience of spam-bots.)
"Twitter uses magic to arrive at it's <5%."
No, Twitter takes a random daily sample of accounts and uses human review to determine how many are authentic, and how many are spam bots. Enough of these, gives them the ability to provide a confidence interval of the number of spambots on the system, something like a 95% chance there is between 4.5% and 5.5%, 99% between 4.0% and 6.0%, 99.9% between 3.5% and 6.5% etc
Only 'magic' if you're a complete idiot unaware of how statistical sampling works.
Only 'magic' if you're a complete idiot unaware of how statistical sampling works.
That's why I mentioned the Hockey Stick. A suprising number of people who should know better, don't seem to know how statistics or sampling works. Possibly close to 97% of some scientists working in certain fields. Much of the 97% involved selection bias, but there's also a lot of examples of screening biases and other problems. Think my favorite example is still 'Rahmstorf Smoothing'.
But currently we're all complete idiots because a core issue in this case is how exactly Twitter's sampling works, how accurate it is, and eventually how much Twitter knew (or ignored) wrt accuracy/reliability. Especially as rightly or wrongly, it's considered a key metric, ie material. If value relies on monetisation, then it needs to be reasonably reliable.
Bot numbers, their definition and how the were measured would be a core issue of due diligence. They are certainly a core issue of Musk's tweets and court filings. What actually matters to the Delaware Chancery Court is a much narrower issue.
There were no legal requirements on Twitter on how to define or measure bot numbers for their SEC filings. They got to choose both. Musk has to prove that following Twitter's methods (whatever they were) did not lead to the numbers published in the SEC filing. Using a different method at a different time to find a number with a different definition then has to be followed by evidence that this method proves Twitter did not get the number they published as Twitter (loosely) defined it.
What is actually going one here is Musk needs time. He needs vast amounts of data and a huge team of data scientists working with a complex supercomputer AI. He needs to delay giving their findings until the last possible minute. He needs to make those finding huge and opaque so he can take time 'explaining' them in court. He will give Twitter's lawyers an unlimited amount of time to study his findings and counter them, then argue over every nitpicking detail. The idea is to get his loan and investor agreements to expire so he can claim that he cannot afford to buy Twitter.
There were no legal requirements on Twitter on how to define or measure bot numbers for their SEC filings. They got to choose both. Musk has to prove that following Twitter's methods (whatever they were) did not lead to the numbers published in the SEC filing.
Agreed, ish. Twitter themselves have defined their own recipe to define and measure user numbers, and included those in their SEC filings. This is a 'social media' or post-normal economics problem. Traditionally, it'd been fairly easy to value a company, eg 3x revenue. Sometimes that goes wrong and results in expensive litigation, eg HP v Autonomy.
Social media complicated life by not really having revenues, and certainly not ones that justify their valuations, So Twitter generated around $5bn last year, so perhaps a traditional valuation would be 3-5x, give or take it's regular negative net income. Valuation has been based on claims of monthly active users, and growing the company has been based on growing users. Then Twitter also uses it's metric of monetisable active users, and included those in their public filiings.
Based on those metrics, Twitter flogs spam to advertisers. Advertisers wouldn't want to waste money tweeting into the dark and trying to convince bots to buy KitKats. So accurate user and fake user numbers would seem critical to Twitter's revenues, and valuation. It doesn't really do anything other than attempting to monetise those accounts.
Sure, Twitter heavily caveats it's user/bot numbers, but you seem to be arguing (along with Twitter) that those numbers aren't material. Twitter also seems to be arguing that the numbers may be widely inaccurate, aren't material, and Musk should be forced to overpay for the company. I just don't see how that could be considered just. I'm selling my company and claim I have 5,000 customers. Reality I have 3, my partner and her 2 dogs. Kind of an Icelandic bank thing.
What is actually going one here is Musk needs time. He needs vast amounts of data and a huge team of data scientists working with a complex supercomputer AI.
Perhaps. Or team Musk found something in the firehouse of data that caused concern. Twitter says it's <5% bot, Musk maybe finds >20%. That would be a material difference with a large impact on valuation.. Not just for Twitter, but any social media company that tries to base it's growth or future revenues on similar metrics.
The idea is to get his loan and investor agreements to expire so he can claim that he cannot afford to buy Twitter.
That's a different problem. I agree Musk's been hit with a significant case of buyer's remorse, and substantially overpaid. But caveat emptor. Enforcing the transaction will also get interesting, ie Musk loses, and needs to raise $45bn in the few days between the expected trial end and the contracted closing date.. Which he probably can't do, especially as he appeared to have difficulty getting his financing package together. And Musk's wealth is pretty much linked to Tesla, and he's already borrowed heavily against his stock. Forcing him to rely on that to fund this transaction would probably trigger a wave of defaults and margin calls that would have a big impact on Tesla, SpaceX and the web of companies Musk already controls. And there's already ongoing litigation around Tesla bailing himself and his brother out over the purchase of SolarCity*.
Then even if Twitter 'wins', it probably still loses. It's shareholders and investors will probably be happy because they'll get a big payout. Twitter would end up with a very pissed off Musk in charge of an overvalued business, and would have no choice but to do everything he could to cut costs.
*There might be some good news there. Musk's business model mostly relies on government pork. Biden recently announced his anti-inflation policy to print money and throw it at 'renewables' companies to waste on solar panels, windmills and batteries.. See Solyndra for more info. US politics is weird like that, print another trillion, it absolutely won't be inflationary, and recession? What recession? And a 'wrong' verdict could make that a lot worse, ie collapsing the value of Musk Inc would have a material impact on tech stocks, pension funds, banks etc etc, not to mention a lot of job losses in the supply chain. Or perhaps Apple will step in and buy Tesla out of bankruptcy .
Twitter's bot numbers are unlikely to be considered material by the court. Devin "LegalEagle" Stone did a fairly thorough analysis of the case on his YouTube channel, and he noted that the Court of Chancery is rarely willing to admit something is a material issue significant enough to void a contract.
Stone's analysis is worth viewing. Basically, nothing we've seen in public so far from the Muskovites looks very promising. Twitter is in much the stronger position.
-- And finally.. May they both burn in Hull- --
Excuse me. As a bona fide ex-pat Hullensian I strenuously object to that. As anyone should know the phrase “From Hell, Hull, and Halifax, Good Lord Deliver Us.” comes from the fact that in Hull the condemned were tied to a stake in the Humber and left to drown as the tide came in. Halifax introduced a guillotine and who knows why Hell was besmirched.
So they could not burn in Hull!
Regarding his co-investors, I agree that the court is unlikely to have any specific power over them. If their names and signatures are not on the merger contract with Twitter, then they're not liable. Presumably though a special master would be able to sue them in Musk's name, even if Musk doesn't want to do that. Can you imagine that! They're not exactly going to be fans of him if he's created a situation whereby a court-assigned officer can come chasing them because of a contract they signed with him. Popcorn time indeed, lots of it.
Regarding right or wrong; there is a free market in mergers and acquisitions, it's an essential part of stimulating business. The one thing that almost all law makers are very keen on is that markets (where they exist) operate cleanly, and are not subject to abuse, because ultimately a skewed, dysfunctional market is very bad for everyone. For example, what's the point of starting a start up if one way of cashing in - being acquired - comes attached with a risk of being screwed over?
That's why there are government bodies that police markets, and why there are a lot of laws about how business must be conducted (like the accounting rules in the US). It's possibly borderline that if Twitter weren't pursuing him, the SEC (or some other appropriate oversight body) would.
Musk getting away with it, having signed what is reportedly a binding and enforceable agreement and not being able to demonstrate adequate underperformance by Twitter, would be damaging to the mergers and acquisitions market. No one would ever be able to trust anyone ever again. Someone might even do it to Musk, if he ever offloaded Twitter, SpaceX, etc. That would be ironic!
An appeal could be an interesting event. The Court does seem to be keen to get this done and dusted, to intervene quickly so that the time the company is exposed to "irreparable harm" is minimised. If Musk delays proceeding by appealing, first to the Delaware Supreme Court and then SCOTUS, and still loses comprehensively that could be framed as malicious all by itself; one presumes that the chances of punitive damages on top could go up. All the time Twitter's shareholders are denied their $44billion is time they're not benefiting from having it; that's possibly actionable, all by itself. An appeal - which if lost - could wind up costing Musk a lot more.
Musk getting away with it, having signed what is reportedly a binding and enforceable agreement and not being able to demonstrate adequate underperformance by Twitter, would be damaging to the mergers and acquisitions market.
That seems to be the crux of it. Along with why Musk agreed to sign such a 'seller friendly' agreement in the first place. I sure as hell wouldn't, even if I had Musk's current assets. But the rest seems to be the usual 'he said, she said' test, ie Twitter claims <5%, Musk thinks >5%, and claims Twitter hasn't provided the evidence to support either claim.
An appeal could be an interesting event. The Court does seem to be keen to get this done and dusted, to intervene quickly so that the time the company is exposed to "irreparable harm" is minimised.
Seems like it's being scheduled around the original closing date. Presumably if the deal misses that close, then it'll be a pile more litigation for failing to complete the transaction. But I get the feeling an amount of irreparable harm has already been done to both parties. Now, where did I leave my tiny violin?
"But I get the feeling an amount of irreparable harm has already been done to both parties"
Who are the actual parties? Musk, yes. Twitter the business? No. The other party is the Twitter shareholders. Whether irreparable harm has been done to them depends on the court's decision and the court is likely to protect them if it sees them as victims. Irreparable harm to Twitter the business? Very likely but it's just the football.
The issue is, there's not much evidence that what Twitter has said is actually fraud or false. The 5% number Musk likes to say they told him was the actual number of bots, comes from a filing by Twitter. The filing specifically disclaims that number being the exact number. That along with Musk saying that he was buying Twitter to get rid of bots and spam... yeah, he knew what he was getting.
Musk just wants an excuse to get out of buying Twitter or paying damages for failure to complete the agreement now.
>whatever Musk could, like sell his Telsa shares. (Tesla is incorporated in Delaware.
And he could switch registration to Texas or Florida or some other 'freedom' state. Especially if those States offered better tax deals or an accommodating regime for companies that support the correct governor
I can't think of many things that he could do to aggravate the judge more. However, this is Musk. Although presumably there'd be some administrative hurdles to jump. Would these include shareholder agreement. It might also prompt Twitter to ask the court to take control of his shares pending a decision.
And violate a court order? Hello, contempt charges!
Delaware corporations are under the jurisdiction of Delaware, including the courts of Delaware. Musk can't just take his ball and go home.
Even if he could get away with re-registering Tesla elsewhere, the Equal Powers clause would let Delaware pursue remedies.
But in any case, selling the shares of Tesla that Musk owns does not depend in any way on where Tesla is incorporated. It depends on whether the court has power over Musk's finances, and to the extent he is personally liable, it does. (Yes, the actual agreement is between paper holding corporations but I can't see the Chancery flinching at piercing the corporate veil in a case like this.)
I think they are both losing. Twitter swore blind they would never allow Musk to buy them and now they are being forced to take legal action to make him do just that.
I just want to see if their bot figures get picked apart by expert witnesses. Don't much care about the rest.
Popcorn icon when?
The Twitter board changed tack when Musk made them a ridiculously good offer. Failing to accept would have been a breach of fiduciary duty to their shareholders.
Sorry, you are not going to get anything substantial on 'bot numbers. They are simply not relevant to the deal. At an enormous stretch, Musk's lawyers could start by trying to prove statements about 'bots in Twitter's SEC filings were malicious lies (really high bar). Those filings were scrutinised before publication by a team of Twitter lawyers to ensure there is evidence for every word and that nothing is provably misleading. Finding a gross misconduct in that document would only be the first hurdle in a marathon steeple chase.
When it comes to 'bot numbers, Musk's Lawyers' response to Twitter's complaint is full of "Mr Musk believes ...". If you translate that to English you get "We have no evidence to support ..." It is almost as if Musk's lawyers think there is a difference in credibility between a statement in a Twitter SEC filing and one of Musk's tweets.
Much as we all want to see Musk and/or Twitter cast into the Nether Hells of Delaware
This has the potential to be a major fuck-up
If they let Musk get away with this then tomorrow Amazon announce they are going to buy IBM and close it's cloud business. If this causes IBM's share price to fall far enough they do it, if not they announce the legal precedent of take-backsies and welcome all the new customers who left IBM due to uncertainty.
Suddenly no corporate M&A deal means anything.
But if they go nuclear and force Musk to pay the full $44Bn, bankrupting him and forcing him to dump all his Tesla shares, crashing the market, or sell off SpaceX in a fire sale. Then every other private and public company board is going to panic and move their registration from Delaware. And if you aren't a DoD customer why not skip the USA and the whole courts/rule-of-law thing and register in Lichenstein or the BVI or Low-Earth Orbit
Why do you think "statements about 'bots in Twitter's SEC filings were malicious lies (really high bar)"
are a hign bar?
Twitter have had more than one campaign against bots and the only reason, that I can see, to have had multiple compaigns is that they don't actually know how to identify bots.
TL;DR: You're wrong.
Identifying bot accounts1 is a very different problem from estimating how many bot accounts exist.
Twitter have explained their methodology for the latter, and they've given the Muskrats access to the data. No one from Team Musk has yet shown any evidence that Twitter's estimate is far off; we just have a lot of wild handwaving claims from Elon about it.
Beyond that, the Court of Chancery is really, really unlikely to find anything about the bot numbers constitutes a material adverse effect. "Material adverse effect" is a term of art in M&A law; it's not just "anything that gives Elon sadface". The bar for an MAE is really high, full stop.
Also, the contract doesn't say anything about accurate bot numbers. What it says is that Twitter is obliged to respond to reasonable requests for information that has a relevant business purpose. Twitter gave Musk's Minions what they asked for. They provided their estimates; they provided their methodology; they provided the "firehose" of information about Every. Goddamned. Tweet. They can't invent more information. That's it. That's the whole thing.
Musk's lawyers are throwing up a cloud of smoke, but so far they haven't shown anything that has any real weight.
1More specifically, bots posing as mDAUs, monetizable Daily Active Users. No one questions that there are a lot of overt bots on Twitter; Twitter encourages that use case. What's at issue (well, not actually at issue, but what Musk and his lawyers are pretended is at issue and what some rather gullible observers think is somehow important) is how many accounts are 1) routinely active, 2) presenting themselves as real meat people, and 3) actually bots.
But he did close the deal, by signing it, because he very definitely could. Launching a confidential countersuit after the trial has been confirmed looks like a very desperate last throw of the dice. The sort of thing people do when they know they've lost.
This is true – and I believe efforts to force Twitter to "be fair" and the like are dangerously misguded – but it says nothing about whether Twitter as a cultural phenomenon is toxic and awful, which was what OP actually claimed. Something can be right with the law and still horrible.
But, of course, what that means is the law is the wrong way to combat Twitter and the like. Counterspeech – user education campaigns, social movements against using social media, more resources going to educating people in critical thinking and rhetoric1 – is the only approach that isn't worse than the disease.
1So that they might at least develop decent skills in argumentation, for the love of god. Christ, I don't know how anyone can bear to read tweets. Whenever I see one quoted somewhere there's an excellent chance it will be shallow drivel.
We've just had the verdict come through on the "Wagatha Christie" trial of WAGS over this side of the pond - looks like the court entertainment continues on the other side of the pond, this time with TWITS
https://www.reuters.com/world/uk/wagatha-christie-libel-trial-verdict-due-2022-07-29/