Elon Musk’s argument for canceling the Twitter takeover Is he really driving in the wing?

Twitter 1 – Elon Musk 0. On Tuesday, July 19, the social network emerged victorious from its first legal battle with the billionaire. The hearing in a Delaware court focused on a trial date that will determine the future of the $44 billion acquisition. This victory over history seems insignificant, but it is nonetheless central to the bipartisan power game.

Twitter wanted a trial in mid-September, over the course of 4 days. Camp Musk wanted to take place in mid-April 2023, over 10 days. Justice Counsel Kathleen McCormick decided in the direction of the social network: the trial will take place in October, over 5 days, unless the situation changes. After the date of the appointments, this first public discussion between the two parties’ attorneys gave a glimpse into their respective defences.

In the face of Twitter’s economic and financial arguments, Musk’s camp bet everything it had on the issue of the number of fake users of the social network, to which the judge seemed unreceptive. Taste of the trial?

Elon Musk vs Twitter: Why the next trial date is the nerve of war

Twitter heard

In her conclusion, the judge reiterated Twitter’s argument about the need to resolve the dispute quickly, to avoid plunging the company into a more delicate financial situation than it already is. “In general, the longer the acquisition process goes, the thicker the cloud of uncertainty around the company, and the higher the risk of irreparable harm to sellers.She said the social network has lost more than 25% in the stock exchange since the takeover bid was announced in early April, and many of its projects have been frozen pending the outcome of the case.

As a reminder, Twitter doesn’t just want compensation from the billionaire: the company wants to wind down its $44 billion acquisition. The possibility that the judge left it open: “It is by no means clear that the damages are sufficient compensation if Twitter eventually proves what it claimsBut it remains difficult to anticipate the court’s decision, as the case is unique in the history of mergers and acquisitions, in terms of its size, the personality of Elon Musk and the cascading repercussions of the situation.

Elon Musk literally goes with the fake accounts argument

In the face of Twitter, Musk’s camp’s argument centered on his suspicions about the platform’s numbers of fake users. The billionaire has been constantly defending this rhetoric since mid-May: according to him, Twitter will announce to the market four times (5%) fewer fake accounts than it actually is. And since this difference will have effects on ad turnover for the social network, Elon Musk will be hurt.

The Tesla boss made this argument the centerpiece of his case for withdrawing from the deal, while his estimate is based only on a hunch, which he has so far failed to show even the beginning of proof. Musk’s camp still hopes to invoke this fake accounts story to activate the MAC clause (substantial negative effect), a standard clause in this type of contract, that would allow him to void his legal obligation. Problem: Effective uses of this clause are based on situations much more extreme than those presented – such as losing 90% of the turnover between contract signing and final agreement. In other words, even if the billionaire succeeds in proving what he says, he will run a strong risk of rejecting the clause.

The other way the entrepreneur envisions is to prove that Twitter voluntarily withheld information from the fake accounts, thus breaching these obligations of honesty enshrined in the contract. Again, a difficult scenario to think of. The justice minister has yet to say whether the lawsuit will require verification of Twitter’s allegations about spam accounts.

Does the issue of robots have a place in the trial?

In response to Musk’s lawyer’s briefing about the fake accounts, Twitter hacked: “this is It is not the subject of the takeover agreement, it will not be the subject of the lawsuit.” And for good reason: Uncertainty about the number of fake users, such as the issue of spam size, doesn’t appear anywhere in the contract and therefore would be beyond judgment. Upon signing the purchase agreement, the billionaire refused his right to ask for more details about the company’s economic indicators.

That’s not all: Twitter has repeatedly stated that it does not categorically claim to have less than 5% of spam accounts. His official statement to the SEC (American Market Regulator) is more accurate. He explains that he has a system for estimating the number of fake accounts, and that this method involves human judgment, and results in a number under 5%. In other words, it is an estimate with a margin of error, particularly of a human, that can be significant.

Thus, to attack the social network at the discretion, the Musk camp cannot really wage a numbers war, which would not directly contradict what Twitter asserts. his options? Proving that Twitter lied and had no rating system; demonstrate that this estimation method was not created in good faith; Or even prove that the social network lied about the number its estimates released. A completely different debate than a simple evaluation war.

The Musk camp is taking advantage of the stalemate

In May, Twitter CEO Parag Agrawal publicly made it clear that he had presented the recognition process to Elon Musk. Then, in early June, after the billionaire said he was “freezing” the acquisition, the social network opened a real-time database of all tweets for his own accounts. An act of goodwill intended to calm the rhetoric of a businessman. But Musk’s lawyers are sticking to their guns:We don’t have their system. We do not have the instructions given to the residents, nor how they applied them.

If they can maintain that discourse, it is largely because Twitter cannot give them access to their rating tool. The latter includes metadata analysis [des données rattachées aux tweets, ndlr] Some are personal data, and require the free and informed consent of users to be processed.

Result: Two months after Elon Musk raised the issue of fake accounts, no counter-estimate emerged. Even worse, his side wanted a trial within 7 months to find this number – a process”compound” And the “It requires a lot of experience“In their opinion, with yesterday’s decision, the businessman has only 3 months left to concretely support his observations, or find other valid arguments to exit the acquisition.