Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit. @matt_levine This again
No, come on, stop it. Six weeks ago, Elon Musk signed a merger agreement in which he made a legally binding promise to buy Twitter Inc. for $54.20 per share. A few weeks later, he decided he didn’t want to pay $54.20 per share anymore, perhaps because he had grown bored of Twitter, or perhaps because the prices of social-media stocks, and of Musk’s company Tesla Inc., had fallen, and $54.20 looked pretty expensive.
The merger agreement does not, however, allow Musk to walk away because he changed his mind. He needed some pretext for walking away. He came up with what he thought was a good one: Twitter says, in its public filings, that no more than 5% of its “monetizable daily active users” are “false or spam” accounts, and Musk has a vague sense that there are more spam bots than that. (To be fair, a lot of his followers are bots .) He floated the idea that he could walk away from the deal because Twitter was lying about the spam bots.
To a non-lawyer I suppose this looked like a good pretext, but it was not. It was not for at least three reasons:
> Musk had not a shred — not even the tiniest bit — of evidence that Twitter’s estimates are wrong, and it seems very likely that they are right. 1
Even if Twitter’s estimates are wrong, Musk could not get out of the merger agreement unless the error was likely to have a “material adverse effect” on Twitter’s business, and it absolutely would not.
Musk has been talking about Twitter’s bot problem forever, and in fact he originally said that he wanted to buy Twitter in order to fix the bot problem, so no one could possibly believe him when he said that he wanted to walk away from the deal because he just discovered that Twitter has a bot problem.
So there were a few days when everyone talked about how Musk was trying to back out of the agreement, and about what Twitter could do to stop him, and then that died down when everyone realized that this pretext was terrible. While Musk has tweeted about not going ahead with the deal, and talked about it at a private conference for his fans, it doesn’t seem like he has sent any formal notice to Twitter saying that the deal is off. (Certainly neither Musk nor Twitter have made any SEC filings about that sort of notice, which you might expect if he’d sent one.) Perhaps his lawyers are less willing to ignore the agreement than he is, or at least need a better pretext than he’s managed so far. Well. I guess he set his lawyers — led by Mike Ringler of Skadden, Arps, Slate, Meagher & Flom LLP — to work finding a pretext that they could stomach. And they found one, and today they filed it with the US Securities and Exchange Commission, in the form of a letter to Twitter threatening to call off the deal .
Their pretext is sort of the lawyer version of Musk’s pretext. The problem, say the lawyers, is not that Twitter has too many spam bots. The problem is that, when Musk asks for information about the spam bots, Twitter doesn’t give him the information he wants. From their letter: Twitter has, in fact, refused to provide the information that Mr. Musk has repeatedly requested since May 9, 2022 to facilitate his evaluation of spam and fake accounts on the company’s platform. Twitter’s latest offer to simply provide additional details regarding the company’s own testing methodologies, whether through written materials or verbal explanations, is tantamount to refusing Mr. Musk’s data requests. Twitter’s effort to characterize it otherwise is merely an attempt to obfuscate and confuse the issue. Mr. Musk has made it clear that he does not believe the company’s lax testing methodologies are adequate so he must conduct his own analysis. The data he has requested is necessary to do so. There is a technical bit of mergers-and-acquisitions lawyering here that might be worth explaining. In the merger agreement, Twitter makes representations , statements about its business that it promises are true. Arguably […]
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