The Three Reasons Why Elon Musk Called Off His Acquisition of Twitter

Elon Musk just tweeted a picture of himself laughing - along with a caption he'd apparently added himself. "They said I couldn't buy Twitter. Then they wouldn't disclose bot info. Now they want to force me to buy Twitter in court. Now they have to disclose bot info in court." In fact, tonight The Register cited one of the documents Twitter filed in court after Musk's lawyer argued Twitter had "failed or refused" to provide info on spam accounts. But so far it's just a letter Musk's lawyer wrote to the court on Friday, explaining in more detail why Musk wants to call off the acquisition:One segment of the document claims that Musk and his team sought "a variety of board materials, including a working, bottom-up financial model for 2022, a budget for 2022, an updated draft plan or budget, and a working copy of Goldman Sachs' valuation model underlying its fairness opinion." "Twitter has provided only a pdf copy of Goldman Sachs' final Board presentation." Other disclosures, the document states, "come with strings attached, use limitations or other artificial formatting features, which has rendered some of the information minimally useful to Mr. Musk and his advisors. "For example, when Twitter finally provided access to the eight developer 'APIs' first explicitly requested by Mr. Musk in the May 25 Letter, those APIs contained a rate limit lower than what Twitter provides to its largest enterprise customers. Twitter only offered to provide Mr. Musk with the same level of access as some of its customers after we explained that throttling the rate limit prevented Mr. Musk and his advisors from performing the analysis that he wished to conduct in any reasonable period of time. "Additionally, those APIs contained an artificial 'cap' on the number of queries that Mr. Musk and his team can run regardless of the rate limit - an issue that initially prevented Mr. Musk and his advisors from completing an analysis of the data in any reasonable period of time," the document states. Musk and his team raised the issue of query limits on June 29, but Twitter did not change the limit until July 6 - after Musk asked for its removal a second time.... Musk felt Twitter was in breach of the merger agreement. So he pulled the plug, leaving open the questions of why Twitter might have provided only limited access to its APIs, or why it could not offer more access given it operates at significant scale. In fact, it's one of three reasons for ending the acquisition that Musk's lawyer makes in the letter. Materially-relevant figures on spam accounts were reason number one. ("Twitter has not provided information that Mr. Musk has requested for nearly two months notwithstanding his repeated, detailed clarifications intended to simplify Twitter's identification, collection, and disclosure of the most relevant information sought in Mr. Musk's original requests.") But there's more... Musk's lawyer also argues Twitter is in breach of the merger agreement because of "materially inaccurate representations" - specifically their figures on monetizable daily active users. While Musk's analysis "remains ongoing, all indications suggest that several of Twitter's public disclosures...are either false or materially misleading." While Twitter has claimed they have a reasoned process for calculating monetizable daily active users (and the percentage of spam accounts), Musk's lawyer argues that instead the process "appears to be arbitrary and ad hoc," rendering Twitter's statements "false and misleading." And thus, "Mr. Musk has the right to seek rescission of the Merger Agreement in the event these material representations are determined to be false." But finally Musk's lawyer provides a third reason for ending the acquisition. Twitter was required to "seek and obtain consent before deviating from its obligation to conduct its business in the ordinary course and 'preserve substantially intact the material components of its current business organization.'" The lawyer's letter argues that didn't happen:Twitter's conduct in firing two key, high-ranking employees, its Revenue Product Lead and the General Manager of Consumer, as well as announcing on July 7 that it was laying off a third of its talent acquisition team, implicates the ordinary course provision. Twitter has also instituted a general hiring freeze which extends even to reconsideration of outstanding job offers. Moreover, three executives have resigned from Twitter since the Merger Agreement was signed: the Head of Data Science, the Vice President of Twitter Service, and a Vice President of Product Management for Health, Conversation, and Growth. But Twitter hadn't received "consent for changes in the conduct of its business, including for the specific changes listed above," according to Musk's lawyer, which "therefore constitute a material breach of Section 6.1 of the Merger Agreement."

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