Elon Musk didn’t become the richest person in the world because of a lack of confidence.
But the Tesla CEO revealed on Tuesday that he had sold $6.9billion (£5.7billion) worth of shares in the carmaker, in case he loses his bid to pull out of a hold $44 billion control of Twitter.
Twitter is suing Musk in Delaware over his abandonment of the deal and wants him to buy the company.
In a countersuit published last week, Musk put his side of the argument. According to him: Twitter deceived investors; he violated the agreement by not providing enough information about spam accounts; another violation occurred when Twitter failed to consult with it on business actions such as firing senior executives; and its misrepresentation of the number of users constitutes a material adverse effect, which materially alters the value of Twitter and therefore invalidates the settlement agreement.
Here’s a breakdown of Musk’s costume.
Relations between the two parties remain poor
There’s $44 billion at stake, and the language used in Musk’s countersuit is just as punchy as Twitter’s in the original lawsuit, when the company described his behavior as “a pattern of bad faith.” In the opening statement, Twitter is accused of making financial disclosures to the US financial watchdog that were “far from true”.
“Instead, they contain numerous material misrepresentations or omissions that misrepresent Twitter’s value and caused the Musk parties to agree to acquire the company at an inflated price. Twitter’s complaint, replete with personal attacks on Musk and garish rhetoric more directed at a media audience than this court, is nothing more than an attempt to distract from these misrepresentations,” the lawsuit said.
Strong words, but Musk will also need strong evidence to convince the judge.
Musk’s central argument is about the number of users
From the moment the case started to turn sour, the focus was on the veracity of Twitter’s numbers. It’s also central to Musk’s countersuit. He argues that the number of monetizable daily average users (mDAUs) – genuine, active accounts that can see (thus monetizable) advertisements – is falsely inflated by Twitter which wrongly counts the number of fake and spam accounts on the platform. As well as being a threat to the ad revenue that Twitter depends on, Musk said his plans to introduce a subscription service for Twitter would be affected because there would be fewer customers to target than expected.
Twitter has always said it estimates the number of fake or spam accounts on the platform to be less than 5% of its mDAU base, which currently stands at just under 238 million.
The lawsuit says Musk became alarmed at how Twitter tallies his mDAUs when, three days after signing the deal, he admitted he had overstated his mDAU total for three years to between 1.4 million and 1.9 million users per quarter. Twitter denies the user change was a “restatement” (it describes the change as “updated values”), but admits it didn’t give the information to Musk before signing the agreement on April 25.
Musk is unhappy with Twitter’s verification processes
After agreeing to buy the company with minimal due diligence, the suit says Musk was “surprised” to learn how “miserable” Twitter’s processes for identifying spam accounts were. He said 100 accounts a day were sampled by human reviewers to find the figure below 5%. Twitter’s CEO and CFO were unable to explain how these accounts were selected to be a representative sample.
“Musk realized that, at best, Twitter’s reliance and bragging about its process was reckless; at worst, it was intentionally misleading,” the suit says.
Twitter says it uses a much more layered process to weed out questionable accounts, including the use of automated systems. He also pointed to detailed explanations of how he controls spam accounts, which had been given to Musk, the press, the Securities and Exchange Commission and the public via a Twitter thread from CEO Parag Agrawal. In the most notorious episode of this takeover saga, Musk responded to the latter with a poo emoji.
But according to the countersuit, at least Agrawal and Musk agreed on one thing. The document states that on April 8, Musk sent the CEO a sample spam tweet saying, “I’m so sick of this stuff.” Agrawal replied, acknowledging “[w]We should catch this.
Citing “preliminary expert estimates,” the countersuit claims that as of early July, a third of visible accounts may have been fake or spam. This means that the true proportion of spam accounts among Twitter’s user base is at least 10%.
It indicates that users who see no or almost no ads account for almost all of the growth in monetizable daily users. The majority of ads are served to fewer than 16 million users, according to the suit.
Twitter says that while not all users see ads on any given day, in the first quarter “significantly more than” 229 million accounts contributed to Twitter’s average quarterly user count.
As for the 10% figure, Twitter says it was based on a publicly available web tool, Botometer, which flagged Musk’s own account as a likely bot.
Twitter made decisions without consulting Musk
One of the clauses of the merger agreement states that Musk must be notified when Twitter deviates from its obligation to conduct business in the “ordinary course.” In the countersuit, Musk claims Twitter made several “meaningful” changes — including the firing of two executives, the start of a hiring freeze and the initiation of a legal dispute with the Indian government — that have produced without his consent.
Twitter’s response is that firing employees or acting to protect users’ rights in foreign jurisdictions are part of the day-to-day business of running a business.
The information did not arrive
Musk also claims Twitter failed to provide him with all of the data and information he requested “for a reasonable business purpose related to completing the transaction.” The lawsuit says Musk received tons of “stale data” that didn’t answer his questions.
He says, ostensibly, that Twitter was happy to send data such as “a copy of his deal with the Golden State Warriors for basketball tickets and VIP parking.”
After several back and forth over increasingly detailed requests for information, the suit claims that “the only conclusion the Musk parties could draw from Twitter’s obfuscation and delay was that Twitter knew it had something to hide”.