In a move surprising just about no one, Elon Musk has formally attempted to cancel his plans to privatize Twitter (NYSE: TWTR). The announcement was made via a 13G filing with securities and exchange commission after the close of market today.
The merger agreement between Musk’s private company and Twitter was formally cancelled by Musk via a letter sent to the company earlier today. The cancellation was blamed on Twitter being in “material breach of multiple provisions” of the merger agreement the two parties had previously entered into. Musk also cited “false and misleading representations,” for which he would “suffer a company material adverse effect.”
At its core, Musk appears to be attempting to renege on the merger under the guise of being unable to “make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform.” He blames the company for not providing all the information requested on the matter, sometimes ignoring requests, and sometimes rejecting them for “unjustified” reasons. The data that was reportedly provided is also said to sometimes have been incomplete or contained unusable data.
The data request was done under a clause in the agreement outlining Musk can request data “for any reasonable business purpose related to the consummation of the transaction,” with the data reportedly required for financial planning, transitioning, and the satisfaction of conditions for closing.
While Musk is attempting to back away from the transaction under the guise of too many bots being prevalent on the platform, there is of course, a Tweet wherein he explicitly stated part of the reason for his original Twitter bid was to “defeat the spam bots or die trying!,” which is at odds with his latest commentary.
Also requested by Musk was information related to the measuring of monetizable daily active users, or mDAU, how the company audits the inclusion of spam or fake accounts in that figure, how it identifies spam and fake accounts, measures of the data point for the last eight quarters, and finally, data on the financial condition of the company. On the latter request, Musk specifically was in search of board materials, a bottom up financial model for the year, a budget, and a working copy of the valuation model created by Goldman Sachs. Twitter reportedly only provided data on the last request, but even then provided only a pdf copy of the final board presentation by the firm.
The letter also addresses “public speculation,” indicating that the letter was also for public consumption and not just Twitter’s board, stating that “Mr. Musk did not waive his right to review Twitter’s data and information simply because he chose not to seek this data and information before entering into the Merger Agreement.”
This comment was shortly followed by Musk accusing Twitter of making an “untrue statement of material fact” to the SEC related to its mDAU’s, stating that preliminary data analyzed by his team has found “that the proportion of false and spam accounts included in the reported mDAU count is wildly higher than 5%.”
Musk closes his letter by stating that hiring freezes enacted at the company, as well as the laying off of a third of the talent team and firing its Revenue Product Lead and General Manager of Consumer works against preserving the material components of its current business organization. He also references the resignation of three executives since the merger agreement was put into place – which are largely out of the control of the company.
Twitter last traded at $34.66, down 5.9% in after market trading.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
