> Musk should just pay the break fee of $1bn, and renegotiate for $42.69 or whatever meme number he fancies. Why pay $42bn total for something when you can get it for $30bn.
That's not really how the break fee works. There's a specific performance clause that allows Twitter to force Musk to go through with the deal as long as he has the money (which, shockingly, seems to have come through). They'd only give up on that and take the break fee if the deal was truly over and they were prepared to say no to a lower offer.
I admittedly haven't checked the full agreement, but if that is the case, then the angle over the less than 5% spammers/bots makes even more sense, if that number was indeed part of the agreement.
1) That number was not part of the agreement
2) What is part of the agreement is that Musk waived his right to due diligence
3) That number is part of Twitter’s usual investor disclosure, but with a caveat that it may be wrong; besides, Musk may only break the deal if any incorrect disclosure constitutes a “Material Adverse Event” which in Delaware law means he must prove it affects the value of the company by at least 40%, which this obviously does not
> We currently estimate that false or spam accounts represent less than 5% of our MAUs. However, this estimate is based on an internal review of a sample of accounts and we apply significant judgment in making this determination.
Here's the actual quote from Twitter's IPO. 0% chance Musk is convincing a judge this statement is "materially off" given the amount of disclaimers attached.
Similar statements in more recent fillings have all come with similar disclaimers to the best of my knowledge.
Yep, agreed. It doesn't seem like he has much of a shot. The only way it seems possible is if they knew it was materially off, there are internal docs with analysis showing something like 10%, and they just lied and put some language around it to give them wiggle room.
You should definitely read Matt Levine's coverage of the fiasco.
Quote from his newsletter:
> That contract does not allow Musk to walk away if it turns out that “spam/fake accounts” represent more than 5% of Twitter users. We discussed this last month, when Twitter admitted in a securities filing that it had (slightly) overestimated its daily active users for years. The merger agreement contains a provision that allows Musk to walk away if Twitter’s securities filings are wrong — and this 5% number is in its securities filings — but only if the inaccuracy would have a “Material Adverse Effect” on the company. (See Sections 4.6(a) and 7.2(b).) That is an incredibly high standard: Delaware courts have almost never found an MAE. An MAE has to be something that would “substantially threaten the overall earnings potential of the target in a durationally-significant manner,” the courts have said; there is a rule of thumb that an MAE requires a 40% decrease in long-term profitability. If it turned out that 6% or 20% or 50% of Twitter accounts are bots, that will be embarrassing and might even reduce Twitter’s future advertising revenue, but will it be an MAE?
There isn't a way for him to exit the deal – Twitter can compel him to go through with it based on the contract. The main question remains though: Will Twitter go through the arduous and potentially ruinous process of forcing him to honour his obligations? Is this a negotiating tactic on his behalf (Is he trying to get a better deal)? If he does want out, will Twitter compromise and take a settlement (they could ask for way more than oft-discussed $1B exit fee)?
This is Musk being Musk, and personally I hope if he does try to back out or renegotiate, he gets punished severely.
Matt's understanding of M&A is... a little shallow. An MAE or MAC is about something changing between the time of the deal being signed and actually closing.
There doesn't need to be an MAE or MAC for a deal to fall through if a representation the target makes is false. In this specific case Musk can walk if any of the reps & warranties are false (or any of the covenants are breached).
I looked it up and the news seems to be reporting what you said, but it is not true. Section 9.9 of the agreement is contingent on a bunch of conditions being met, after which the deal is forced through if it is also funded. For some reason the media misreported it out of context. The break fee is paid by either Twitter or Elon, depending on who cancels the deal.
Yes, it is public though I don't have a link. To the best of my knowledge, Twitter is accountable to the SEC if they materially misrepresented any numbers about their business. I don't think the deal has any specific language about that.
That's not really how the break fee works. There's a specific performance clause that allows Twitter to force Musk to go through with the deal as long as he has the money (which, shockingly, seems to have come through). They'd only give up on that and take the break fee if the deal was truly over and they were prepared to say no to a lower offer.