Elon Trying To Get Out Of The Twitter Purchase, Claiming That Because Twitter Won’t Share Private Info, It Has Breached Its Agreement
It's entirely possible that there's a different backstory to the whole Elon/Twitter mess, but from everything that's happened so far, the story sure looks like (1) Elon decided to buy Twitter on a whim without recognizing either the risks or the actual challenges in pulling together a deal, (2) almost immediately started regretting it, especially as the price of his Tesla shares, which are key to the deal, tanked, and (3) began to seek any pretext to bail on the deal, hopefully without having to pay the $1 billion breakup fee.
I am guessing that Musk is not a particularly good poker player, because he's telegraphed nearly every move he was planning to make from a million miles away. Last month he declared the deal was on hold because he believed that there was more spam on Twitter than the company was letting on. Twitter pointed out that there was no such thing as putting the deal on hold. The terms of the agreement don't just let him walk away. And also, the idea that he wouldn't conclude the deal because there's too much spam on Twitter... doesn't make any sense at all.
One of his most clearly stated reasons for buying the site in the first place was that he wanted to stop all the spam. Indeed, around the time he announced the takeover attempt, he said his top priority" was to get rid of spam on the site. Indeed, people pointed out that it was kind of funny, because he seemed to assume that his experience - as a celebrity user of the site with over 90 million followers - was somehow representative of the experience of others. As a much smaller user on Twitter I almost never see spam. But, either way, he made it clear before doing the deal that he believed the site was filled with spam. So, it's pretty rich for him to then say that he was surprised by the amount of spam. He already has said otherwise.
Even worse, in the merger deal, he explicitly waived his right to further due diligence. And, on top of that, the publicly reported numbers from Twitter about spam on the site haven't changed in quite some time, so it's not like all of this info wasn't already public long before Elon made the rash decision to buy the company. As Bloomberg's Matt Levine noted at the time Elon started this nonsense, it was so obviously an attempt to come up with a pretext to get out of the deal:
More important, nothing has changed about the bot problem since Musk signed the merger agreement. Twitter has published the same qualified estimate - that fewer than 5% of monetizable accounts are fake - for the last eight years. Musk knew those estimates, and declined to do any nonpublic due diligence before signing the merger agreement. He knew about the spam bot problem before signing the merger agreement, as we know because he talked about it constantly, including while announcing the merger agreement. If he didn't want to buy Twitter because there are spam bots, he should not have signed a contract to buy Twitter. No new information has come to light about spam bots in the last three weeks.
In response to some of this, Twitter's apparently lame duck CEO, Parag Agarwal, put out an actually interesting thread on the difficulty of finding and measuring spam, but also giving some insight into how the company calculates how much is counted as monetizable, which is the key part Elon claimed to be upset about. This is actually important, because if Twitter recognizes something is spam and doesn't monetize it (i.e., charge an advertiser for displaying an ad to a spam account) there are fewer issues with it. But also, a key point that Parag notes, and that we've tried to explain for years when it comes to the challenges of content moderation, spammers are constantly changing. It's a dynamic problem, rather than a static one.
Some final context: fighting spam is incredibly *dynamic*. The adversaries, their goals, and tactics evolve constantly - often in response to our work! You can't build a set of rules to detect spam today, and hope they will still work tomorrow. They will not.
- Parag Agrawal (@paraga) May 16, 2022
Anyway, there's no actual out for Elon if he just claims there's too much spam on the site for all the many reasons listed above. But he so clearly wants out of the deal that he hired some of the best lawyers around to try to cook up some excuse kinda, sorta, but not really related to all this to see if he can use it as an escape hatch.
And that all came out earlier this week in a letter to Twitter's chief legal officer, that was also filed with the SEC. While many people reported that this was over the spam issue he had raised weeks earlier, that wasn't actually the case, because the lawyers know that's not an issue he can use. Instead, they claim that Twitter violated covenants in the purchase agreement to provide the data for Musk to make his own determination about the prevalence of spam on the site.
This is an important distinction. He can't drop the deal because there's too much spam. But, his lawyers argue, part of the terms of the agreement was that Twitter was required to provide to Musk data and information that he needs, in order to consummate the deal. Musk, then, has apparently cooked up this pretext: he will keep demanding all sorts of irrelevant information, and if Twitter refuses to hand it over, then that magically means they violated the deal, and he (thinks he) can back out.
It appears that Twitter's response to all of this is to say that they're happy to provide more context, but he's asking for data he does not have a right to as a non-employee of the company. Twitter points out that the purchase agreement says they will provide data necessary for closing the deal. But, as Parag's thread made clear, the data used to determine spam involves a lot of internal private data, including things like IP addresses.
As you might imagine, there would likely be serious privacy concerns if Twitter now has to hand over tons of IP addresses, and possibly other private data to Musk - who, again, is not an employee, and does not yet own the company. So there are very good reasons for Twitter to refuse to hand over such data, including that it could put the company at other forms of legal risk over its handling of private data.
In other words, this is all just another smokescreen attempt to try to back out of the deal. Once again, Bloomberg's Matt Levine has the best take on how all of this works. He points out that, while Musk promises to keep any private data private, Musk has shown throughout this deal (and other deals) that he's not exactly one to abide by such terms (already within the last few weeks Twitter has accused him of violating a non-disclosure agreement over some of its spam counting methodology). So, there are legitimate concerns that Musk might do something with that private data that he shouldn't. I'd say there are also probably concerns about how Twitter sharing that data with Musk might raise questions under the GDPR, California's privacy law, and other such laws...
Levine's conclusion is similar to mine. This excuse is better than claiming he's bailing because of spam, simply because he can't bail because of spam. So trying to bail because Twitter won't provide all the info he's demanding at least has the patina of legitimacy, even if... it's a pretty thin one.
I mean, to be clear, it isn't a good pretext. It is, for instance, very hard to imagine that Musk's banks are clamoring for detailed information about spam accounts to line up their financing; Twitter has raised debt financing in the past with its existing bot disclosure. Nor is it clear what Musk's reasonable business purpose related to the consummation of the transactions" is. And because it is so clearly part of Musk's broader trolling operation, it is hard to imagine him winning if this ends up in court: If he refuses to close because Twitter won't humor his bot-fishing expedition, it seems unlikely that a Delaware court will side with him. But it does raise the risk for Twitter, which gives him a bit more leverage to try to renegotiate the price. It is all going to get so much dumber.
At this point, it's unclear what happens next, but it seems highly likely that this is going to end up in court. And that's going to be quite the show.