The richest man globally, worth nearly $280 billion, is Tesla CEO Elon Musk. The executive announced in the middle of April that he would buy social media app (and website) Twitter for $44 billion. But by early last month, Musk had withdrawn the offer leading Twitter to sue Musk and the latter to file a countersuit.. What made Musk change his mind was Twitter’s failure to prove to the multi-billionaire that spam and fake accounts make up less than 5% of the total number of Twitter accounts.
Musk believes that at least 10% of Twitter’s daily active users (DAU) that see ads are not authentic. Furthermore, Musk alleges in his countersuit that of the 229 million daily active users on Twitter, 65 million, or 28%, do not see any ads. To get a more accurate indication of the number of bogus accounts on Twitter, Musk used Botometer, a tool created by Indiana University that measures inauthentic accounts. With this tool, Elon’s team found more fake accounts than the number that Twitter disclosed, according to court filings.
With a trial set to begin in October, Musk’s lawyers wrote in a document submitted to the court, “Twitter was miscounting the number of false and spam accounts on its platform, as part of its scheme to mislead investors about the company’s prospects. Twitter’s disclosures have slowly unraveled, with Twitter frantically closing the gates on information in a desperate bid to prevent the Musk parties from uncovering its fraud.”
But having said all that, Reuters today cited a tweet disseminated early today by the Tesla CEO that says if Twitter could reveal how it samples 100 members and confirms that they are real Twitter users, his $44 billion bid to buy Twitter will be back on. But Musk added in his tweet, “However, if it turns out that their SEC filings are materially false, then it should not.”
In his court filing, Musk claims that Twitter double counts linked accounts. The multi-billionaire claims that Twitter had inflated monetized daily active users in its SEC filings by as many as 1.9 million people each quarter.
In response to another Twitter user who asked whether the U.S. Securities and Exchange Commission (SEC) was investigating the “dubious claims” made by Twitter, Musk tweeted back, “Good question, why aren’t they?” The legal battle between both sides is taking on a harsh tone. This past Thursday Twitter rejected Musk’s claim that he had been tricked into bidding for Twitter.
Tinged with sarcasm, Twitter’s response was filed with the court and it said, “According to Musk, he — the billionaire founder of multiple companies, advised by Wall Street bankers and lawyers — was hoodwinked by Twitter into signing a $44 billion merger agreement.” Twitter added, “That story is as implausible and contrary to fact as it sounds.”
Bret Taylor, Twitter’s Chairman of the Board, said of Musk, “His claims are factually inaccurate, legally insufficient and commercially irrelevant.” And as far as the Botometer tool is concerned, Twitter called it unreliable and pointed out that it once called Mr. Musk’s own Twitter account “highly likely to be a bot.” In its lawsuit, Twitter said, “Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests.”
A “specific performance” clause that is part of the contract allows Twitter to sue to get the deal to close as long as Musk’s financing remains in place. But if the funding for the deal falls through, Musk can pay $1 billion to end his obligations to buy Twitter.
Tweet posted today by Musk gives some hope that the deal can be completed
While Musk is a multi-billionaire, much of his wealth is tied up in Tesla shares. Musk planned to borrow against the value of some of his Tesla shares to raise as much as $12.5 billion. A dangerous financial maneuver, had Tesla shares declined sharply, Musk could have been forced to pay additional funds with a margin call, or have the Tesla shares pledged as collateral for the loan sold out from under him.
Eventually, the executive decided against borrowing against his Tesla holdings before scraping the deal altogether. Still, the tweet that Musk posted today reveals that there is still a path to a completed acquisition.
