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Opinion
Matt Levine

Musk Tries a New Way Out of Twitter

Also Tether’s audit delays, retail execution latency and the Elon Musk private jet tracker.

A month ago, Elon Musk’s fight with Twitter Inc. was a merger dispute. Musk signed a merger agreement with Twitter in April, in which he agreed to buy Twitter for about $44 billion. Then the stock market went down, and Musk decided that he didn’t want to pay $44 billion for Twitter anymore. And so, like lots of other regretful acquirers before him, he tried to find an excuse to get out of the deal. There is a standard set of ways to do this. The merger agreement is 73 pages long, full of representations and covenants and conditions. You read through the merger agreement, you find some places where you think Twitter has not lived up to its obligations or met its conditions, you send Twitter a letter saying that and terminating the deal, Twitter sues you, and you meet up in Delaware Chancery Court to argue over what the merger agreement requires.

This is in fact what Musk did. Frankly I did not think that he did a very good job of it. His main excuse is that the merger agreement contained a representation that no more than 5% of Twitter’s monetizable daily active users are spam or bot accounts, but in fact vastly more than 5% are bots, so he can get out of the deal. No part of this excuse is true in any way: The merger agreement does not contain that representation, there is no evidence that it’s wrong, and even if it existed and was wrong it would not be a reason to get out of the deal unless it caused a “material adverse effect” on Twitter’s business, which seems unlikely. Nonetheless, this is how you play the game. Musk is trying to prove that the merger agreement does not require him to buy Twitter; Twitter is trying to prove that it does. Like most observers, I think that it clearly does, so this is an uphill fight for Musk, but you never know.