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With Elon Musk waffling on his commitment to buy Twitter for $44 billion, Twitter's board of directors yesterday said it intends to enforce the merger agreement at the original price.
"The Board and Mr. Musk agreed to a transaction at $54.20 per share. We believe this agreement is in the best interest of all shareholders. We intend to close the transaction and enforce the merger agreement," the Twitter board said in a statement reported by CNN and other media outlets. Twitter on Tuesday also released a preliminary proxy statement laying out reasons shareholders should approve the deal.
"Twitter is committed to completing the transaction on the agreed price and terms as promptly as practicable," the company said in a press release announcing the proxy statement.
Exit options
The sale agreement lets either Twitter or Musk kill the deal and pay a breakup fee of $1 billion under certain circumstances. For example, Musk would have to pay the termination fee if he "fails to consummate the Merger as required pursuant to, and in the circumstances specified in, the Merger Agreement."
However, Musk can't necessarily get out of it based solely on his complaints about the number of spam accounts on the social network. As Bloomberg wrote, the merger agreement also "includes a specific performance provision that allows Twitter to force Musk to consummate the deal, according to the filing. That could mean that, should the deal end up in court, Twitter might secure an order obligating Musk to complete the merger rather than winning monetary compensation for any violations of it."
That provision can be found in section 9.9 of the merger deal. If Twitter meets its obligations under the agreement, it "shall be entitled to specific performance or other equitable remedy" to "cause the Equity Investor [Musk] to fund the Equity Financing, or to enforce the Equity Investor's obligation to fund the Equity Financing directly, and to consummate the Closing," the agreement says.
Twitter and Musk agreed that if either party fails to take required actions to consummate the agreement, there would be "irreparable damage for which monetary damages, even if available, would not be an adequate remedy." Twitter or Musk would thus "be entitled to an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which they are entitled at law or in equity."
The deal also has a non-disparagement clause that says Musk can tweet about the merger "so long as such Tweets do not disparage the Company or any of its Representatives," but Musk has repeatedly criticized Twitter and its representatives since signing the deal.
Musk threatened to kill deal over spam data
Musk on Tuesday said the "deal cannot move forward" until Twitter provides data behind its estimate of spam accounts. He also said this week that renegotiating the deal at a lower price is "not out of the question."
But Musk's offer to buy Twitter waived "business due diligence," and the Twitter board relied on that commitment when it approved the transaction and recommended that shareholders vote for it. Twitter's proxy statement told shareholders that one reason to approve the agreement is "the likelihood that other potential acquirers would require substantial due diligence, creating a delay and risk to reaching the signing of such a potential transaction."
As we've previously written, Musk says he thinks at least 20 percent of Twitter accounts are fake or spam, while Twitter said in a Securities and Exchange Commission filing that fewer than 5 percent of monetizable daily active users (mDAUs) are spam or fake. Those numbers are not incompatible, as Musk seems to be talking about all accounts, while Twitter's 5 percent stat refers to accounts that are logged in and can see ads each day. Yet Musk has insisted that Twitter's data is wrong and rejected the explanation offered by Twitter CEO Parag Agrawal.
Musk “has produced no evidence at all”
Bloomberg Opinion columnist Matt Levine took Musk to task for trying to halt the deal over spam numbers despite no new information about spam becoming available since Twitter accepted his offer to buy the company:
He has produced no evidence at all that Twitter's estimates are wrong, and certainly not that they are materially wrong or made in bad faith. (Musk can only get out of the deal if Twitter's filings are wrong in a way that would cause a "material adverse effect" on Twitter, which is vanishingly unlikely.) His own supposed methodology for counting spam bots is laughable. Yesterday, Twitter's chief executive officer, Parag Agrawal, tweeted a thread explaining in general terms how Twitter estimates that fake accounts represent fewer than 5 percent of its count of active users and how this analysis can't be easily replicated by outsiders (because they don't know which accounts are real, and also because they don't know which accounts Twitter counts as daily active users). It seems clear that Agrawal's thoughtful answer is basically correct. Musk responded with a poop emoji.
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 percent 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.
It's more likely that Musk is "angling to reprice the deal for straightforward market reasons" amid a rough stretch for Tesla and other stocks, but "that is very clearly not allowed by the merger agreement that he signed: Public-company merger agreements allocate broad market risk to the buyer, and he can't get out just because stocks went down," Levine wrote. Twitter's stock price was a bit over $37 as of this writing.
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