From "Elon’s Out/Musk lost interest in pretending to buy Twitter" by Matt Levine (Bloomberg).
July 9, 2022
"The bots thing, man, I don’t know. We have talked about this before. Back before the market crashed, back when he was pretending to want to buy Twitter, Musk was pretending..."
"... that he wanted to buy Twitter in order to clean up the bot problem. Now he is pretending to want to get out of the deal because of the bot problem. It is tiresome to pretend to take this seriously, so let’s not.
Still, as a legal matter... Is this pretext good enough to get him out of the deal? Well, look. If Musk can prove that in fact Twitter has been running a years-long fraud on its shareholders and advertisers — that it has knowingly been massively understating the number of bot accounts in order to trick companies into buying Twitter ads and shareholders into buying Twitter stock — then, sure, maybe that will get him out of the deal. Twitter does represent in the merger agreement that its SEC filings are correct.... If Twitter were simply lying — if it knew that bots were really 75% of mDAUs — then I suppose the rep would be false. Again there is absolutely no evidence for this.... But if you just pretend that Musk can somehow prove that Twitter is lying then... [he] still has to close the deal unless the representation is false and it would have a 'material adverse effect' on Twitter.... Companies advertise on Twitter because it sells products! People use Twitter because other, non-bot people also use Twitter, so it is a useful and enjoyable social network! Elon Musk — who has far more interactions with bots than most Twitter users — is addicted to Twitter because it is full of real people!... The pretense that Elon Musk has somehow exposed the secret truth that nobody uses Twitter except himself and some spam bots is just absurd! But we have to keep talking about it! It’s so stupid!"
From "Elon’s Out/Musk lost interest in pretending to buy Twitter" by Matt Levine (Bloomberg).
From "Elon’s Out/Musk lost interest in pretending to buy Twitter" by Matt Levine (Bloomberg).
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59 comments:
It's called negotiating...
Of course to prove that the fake accounts are a big part of the company he is buying, that company has to provide the data. Does Matt Levine have any history in big business? He could watch the movie "Working Girl" for some basic facts.
"Musk was pretending..."
"... that he wanted to buy Twitter in order to clean up the bot problem. Now he is pretending to want to get out of the deal because of the bot problem."
Two things:
(i) I had the impression he was more interested in cleaning up the censorship problem,
(ii) let's take this guy's assertion as true; Musk wanted to clean up the bot problem. Doesn't it follow he deserves to know how bad it is?
The gentleman doth exclaim too much methinks.
The pretense that Elon Musk has somehow exposed the secret truth that nobody uses Twitter except himself and some spam bots is just absurd! But we have to keep talking about it! It’s so stupid!"
Wow! Did Mr. Levine recently transition to a 14 year old mean girl?
Whatever the official reason is, everybody knows the real reason, there is no democracy in the world. Elon wants to live a long life.
(i) I had the impression he [Musk] was more interested in cleaning up the censorship problem
Ditto. And to whatever extent both exist and are problems, the censorship problem is the more serious and should be a priority for the owners, WHOEVER owns the enterprise. It could be 10% or 20% bots or parrots or "MicroSerfs" cutting and pasting identical texts to amplify a preferred message, and the message is only what that message may be. But a very few very powerful censors who silence or even limit the reach of a message erode the community to the point of destruction.
"You have to purchase the company so that you can find out what is in it."
Is it possible that Levine knows more about Musk than all the extremist Trump Musketeers? This is not the first long Elon article that he has written. In the past, Levine pointed out that all Musk has to do is mention a company, and the stock value climbs. So if he preceded this announcement with a massive stock buy, his profit-taking is clean and easy. Still, thanks to government giveaways and true believers, the world's richest man can easily take advantage of his influence by exaggerating his intentions. So what's a billion here and there among friends?
It would be helpful to know the pricing method Twitter uses for its advertisers. If the number of real Twitter users doesn’t matter, just whether users click on an ad, then the bot problem doesn’t matter to revenue (assuming bots don’t click on ads).
Bots matter to cost. How much server space do bots take up? That’s a cost. Also, does the government (federal, state, foreign) require Twitter to take reasonable steps to prevent and remove bit accounts.
It sounds like Twitter does not know how many bot accounts there are on average. Perhaps it’s unknowable. If that be the case, then their bot representations are false.
Clench your buns, Matt. It'll go away after a while.
It seems Musk has Twitter in a trap. If Twitter Sue’s to enforce the deal, they will be open to full discovery in litigation. Musk must know or strongly suspect that he’ll find ,substantial misrepresentation once he gets his hands on all of the data. If he’s right, then not only is the deal off but Twitter will face SEC and shareholder suits. On the other hand if Twitter does not sue to enforce the deal it will be viewed as an admission that Musk’s allegations are true which will send Twitter valuations ever lower.
Musk’s ace in the hole is that Jack Dorsey is a friend and ally who obviously has provided Musk with enough information to embolden Musk. Dorsey also does not own much Twitter stock so can take the stock price hit.
Remember, Musk can make a future offer to by Twitter at a much reduced price if he wants.
If bots made the company more valuable, Twitter had no incentive in tamping them down. Going after conservatives may have been Twitter's price to pay for keeping bots alive, inflating the size and price of the company while keeping their woke employees happy.
Sounds like a plot. But then again, a plot is not necessary when emerging niche get filled as if by an unseen hand.
Did Musk really say he wanted to clean up the bots? I don't see them as a problem for users. I do get why management (and potential management) would want an accurate count; if half your users don't exist, seems like that impacts the real value of the company.
Musk is correct that Twitter is the modern townhall. It has a lot of power influence on political and social issues. It wouldn’t surprise me that 1) they use and allow bot accounts to promote their woke agenda, and 2) are arrogant enough to lie about it to the SEC, users and customers.
If they sue Musk to force the sale, the bot % is part of the discovery. When Musk openly challenged them on the 5% claim, they stalled, wiggled, and freaked. Musk is right.
Elon Musk is not the problem. He successfully exposed the corrupt censorship we all see anyway, and now he can expose the corrupt financial dealings. Twitter is also obviously involved and aligned with liberal govt censors on approved opinions and content. Vaccine. COVID. Election fraud. Ukraine etc...
If Musk can prove that in fact Twitter has been running a years-long fraud on its shareholders and advertisers — that it has knowingly been massively understating the number of bot accounts
Under the contract, it is TWITTER that has the burden of proof, of establishing how many of their accounts are legit. Especially if they are fool enough to sue him to enforce the contract. They have to offer the proof and they have to open their books to the court in discovery.
Levine is my favorite source for interesting takes on the world of finance.
We are asked to accept Musk is pretending and also there is absolutely no evidence that Twitter misrepresented the number of bits. Note, Twitter itself acknowledged just this past week that it removes 1 million bot accounts a day, but Mark Levine tells us there is no evidence. What should I do with an opinion article that uses words that the author does not understand?
Musk wants to get out of the agreement to buy Twitter, presumably because he realizes he will be overpaying. It's up to his lawyers to come up with the best excuse that gets him out cheaply. They have settled on the bots problem. We'll see if that flies with a Delaware judge who specializes in such things (given all the public companies incorporated there).
if [ Twitter -ne RifeWithSpamBots ]
then
NoReasonMuskCantAuditIt = true
else
TwitterMustBeRifeWithSpamBots = true
fi
Pretty simple.
(Reposted after bug fix!)
"Musk was pretending..."
"... that he wanted to buy Twitter in order to clean up the bot problem. Now he is pretending to want to get out of the deal because of the bot problem."
************
Comparing apples to kumquats. And mind-reading as well.
* Cleaning up the censorship problem is one reason.
* Not over-paying for a company that secretly understates its total spambots is another.
Superbowl commercials command huge fees because the game draws an enormous audience.
If someone were able to show greatly inflated audience numbers for the event, its broadcasters would be sued blue for over-charging their advertisers.
Ditto Twitter. If it has a large nmber of spambots, it's not worth as much as a going concern.
So why should Musk be forced play "Schrodinger's Cat" with Twitter's spambot numbers? Why can't he find out the truth without buying the company?
Levine or another analyst has a theory that Musk was looking for an excuse to sell a lot of Tesla stock at the top of the market without raising suspicions. Saying he would be using the cash to buy Twitter seemed like a good cover. $8b or so. Tesla thereafter plummeted, so the sale worked out well. He can now use some of the Tesla profit to pay litigators and eventually settle with Twitter.
Twitter's stock price has dropped to nearly half his initial bid price.
If Musk does not take over Twitter, the site is dead. Wait and see. He either reforms it or has killed it.
gadfly, as usual, has Trump on his mind so nothing else registers.
gadfly, it is also obvious that you know nothing about business.
It is kind of an interesting academic exercise: if I'm buying advertising on Twitter because they tell me I'll reach a million viewers (give or take 5% bots), and the real number of bots is 25 or 30 or 50%, at what point does it become "material and adverse"? If I'm getting to fewer humans, then I'm probably overpaying by relying on misrepresentations.
"And to whatever extent both exist and are problems, the censorship problem is the more serious and should be a priority for the owners, WHOEVER owns the enterprise."
The bot issue goes to the actual value of the company. If a significant portion of the Twitter folk are bots or their human equivalent in 3rd world countries, then there are less eye balls with disposable income on Twitter than Twitter is claiming. Those eyeballs are Twitter's only product.
Interesting but not unexpected that liberals like Gadfly are more concerned with Musk exposing the censorship and financial fraud truths going on with Twitter....than the actual censorship and fraud itself.
It’s how you know liberals root for and support the voter fraud. They’ll support anything to get what they want. They’ll even let your city burn, and laugh as your grandmas are mowed down in Christmas parades. (See Kenosha and Waukesha, WI). All this so you can abort a nine month fetus, and teach kids how to stuff dollar bills in transgender g-strings.
"So if he preceded this announcement with a massive stock buy, his profit-taking is clean and easy."
Except that the stock price is likely to go down now. Thanks for playing though.
gadfly said, So if he preceded this announcement with a massive stock buy, his profit-taking is clean and easy.
This got me wondering who actually first said this. I found the answer surprising. Thought sure it was Socrates.
Bloomberg should take far more care in letting someone as ignorant as this write an article concerning complex business affairs.
If Musk can prove that in fact Twitter has been running a years-long fraud on its shareholders and advertisers — that it has knowingly been massively understating the number of bot accounts in order to trick companies into buying Twitter ads and shareholders into buying Twitter stock — then, sure, maybe that will get him out of the deal.
I promise you that Musk's legal team inserted language whereby Twitter represented and warranted a certain maximum number of bots and a requirement that they demonstrate the same, with an out clause if they do not - on a contractual basis, in other words, the burden of proof will not be on Musk.
Twitter does represent in the merger agreement that its SEC filings are correct.... If Twitter were simply lying — if it knew that bots were really 75% of mDAUs — then I suppose the rep would be false
Was the merger agreement publicized? Do we know that Twitter didn't represent to Musk a certain percentage that were actual users? For that matter, does anyone really believe that Musk would have agreed to a deal whereby Twitter would only need to demonstrate that 25% of alleged users were real? Strawman much?
Again there is absolutely no evidence for this....
And again, the deal almost certainly required Twitter to prove actual users - failure to provide data would suffice. The left loves to recite "absolutely no evidence" after they have taken all measures to ensure that no on actually seeks evidence.
But if you just pretend that Musk can somehow prove that Twitter is lying then... [he] still has to close the deal unless the representation is false and it would have a 'material adverse effect' on Twitter....
Wrong once again - the deal would certainly require Twitter to back up the number of users it represented to Musk, and virtually all states require those entering into a contract to negotiate on good faith. Lying is the antithesis of good faith.
Companies advertise on Twitter because it sells products!
No, they advertise because Twitter represents that the ads will be seen by "x" number of real users and they hope that some of those users will watch and ultimately purchase their products.
People use Twitter because other, non-bot people also use Twitter, so it is a useful and enjoyable social network!
Assumes facts not in evidence.
Elon Musk — who has far more interactions with bots than most Twitter users — is addicted to Twitter because it is full of real people!...
I don't know whether Musk is "addicted" to Twitter or whether any such "addiction" is based on it being "full of real people" - I suspect it is more because Twitter seems to have become the sole source for major media reporting, so it is a good way to get his message into other media.
The pretense that Elon Musk has somehow exposed the secret truth that nobody uses Twitter except himself and some spam bots is just absurd! But we have to keep talking about it! It’s so stupid!
Matt Levine, who thinks he is sooo much more sophisticated than the rubes in flyover country (and than Elon Musk, for that matter) shows about as much business/contract sophistication as a 6th rate law school dropout from Palookaville.
Give Musk some credit... The purchase attempt was a cunning ploy to get discovery going with regards to Twitter. He offers to buy, withdraws, they sue... Now, the Musk organization gets discovery on all things Twitter, and we get the spectacle of seeing Twitter (and, the rest of the current Internet bubble...) exposed as lying liars who lie about everything, including their lying.
I think Musk is about as close to a real-life super villain as you are going to get. That said, I also think he's a hell of a lot smarter than people give him credit for, and he's fully aware that what the people running Twitter right now are doing is destructive to his current natural habitat, the US. He's merely taking steps to reduce the damage they're doing to the body politic.
I don't recall ever seeing an ad on twitter. Maybe I am just blind to such distractions, but it seems odd to me.
It is interesting to see people who are economically illiterate like Gadfly and Readering try to do some mind reading Elon Musk.
Not only do you look mean and petty, you also look really stupid.
gadfly said...
So if he preceded this announcement with a massive stock buy..
So what's a billion here and there among friends?
So, Gadfly's saying; that Musk's INTENT was to lose BILLIONS on Twitter...
But, because he'd already lost Billions on Tesla, he needed to lose BILLIONS on Twitter too?
Because Musk has SO MUCH MONEY, that he wants to lose it all?
Is that Right Gadfly? I don't want to misquote you; Though i must say, i'm not sure that makes sense
Isn’t Musk cleaning up the bot problem by pretending to want to buy Twitter?
Ah the world of acquisition documents with Representations (assertions of facts), Warranties (a guarantee that the representations are true) Covenants (promises by one party or the other to do things) and Conditions (things that have to be true or done before the deal can be completed).
Now Elon may have suspected that there was a lot of fluff in the Twitter MDAU when he first made his approach---and at that point Twitter and its Board of Directors hadn't promised anything. But somewhere along the line the Board decided that the sale should take place. If Elon's lawyers were any good (and I am sure that they were) any merger or acquisition agreement that Musk and Twitter signed would contain reps and warranties about Twitter's actual MDAU. And the Conditions clause would say that Musk could cancel the deal if any of the reps and warranties were not true (or perhaps make allowances for some slight "fudging" of the numbers by Twitter).
Now Takirks may be right--Musk may never have intended to actually go through with the transaction--he just wanted to set Twitter up to expose its fraudulent numbers. In doing so, he lives a dinged up Twitter behind. But proving that Musk never intended to complete the transaction may be harder to do than proving that Twitter's numbers were fraudulent.
I would guess that 20-50% of the accounts are bot controlled and/or inactive. I don't think Twitter creates these to defraud their advertisers, but I also think they are quite happy to let them believe there are all these eyeballs for sale that aren't actually there. I think what drives it is the "influencers" paying for followers for their own financial purposes, and there are bot farms that fill that market, and Twitter can't do much about it, but it does matter for how much the company is worth in a buyout.
I think Musk dodged a bullet- the company isn't worth even half what he was offering, and probably worth even less than that. I think advertising on the site is completely worthless- like chuck above, I don't even notice even though I know it is there, I just page right past.
Suing Musk can backfire- it opens them to discovery that he wasn't getting in the negotiations- discovery ordered by a court. Like the case of the Alex Berenson suit, discovery has a way of concentrating the minds of Twitters incompetent management, and I suspect they will make a small offer of severence and Musk will take it, unless this is just Musk negotiating a lower price (not impossible).
I don't recall ever seeing an ad on twitter.
And I think I don't pay sufficient attention.
Myself, I stopped following the reported details of the Musk/Twitter business six weeks ago or so; not enough time in the day etc etc. On the other hand, he and his four (four of his?) sons were granted an audience by the Sovereign Pontiff last week and the consequent photograph was amusing. What appeared to be the youngest son looked (unlike a couple of the others) like he was having a merry old time, giving the raised fist sign (whatever that might mean in the circumstances). In other reigns, I might have been aghast at the outrageous behavior but in this one the opportunity to smile must be seized when it presents itself.
Musk wanted to get Twitter to open it up for free speech and gut out the large number of bots and spam. But its one thing to have an inkling about the size of the bot infestation, it's another to get the actual numbers. And the value of this company depends on that number and it's accuracy. It's clear Twitter has been less then honest and forthright (shock) in producing these numbers or producing believable numbers.
It's one thing to offer to buy a company based on the initial numbers. It's another thing to close the deal when you cannot get confirmed accurate numbers and data. He should not touch it without accurate numbers and data and if Twitter cannot or has not produced it at this point, Elon Musk backing out might not be their worst issue over the next couple of weeks.
Buying this company without knowing the full load of bots and spam accounts is like playing ping pong in the dark. Sure your ball might hit a paddle on the other side, but chances are your ball is just going off into the dark, hitting nothing. Musk's money would be that ball.
Investors make offers to buy companies with a price subject to the completion of due diligence. The seller must produce the requisite information for the buyer to determine if the company’s EBITDA aligns with the due diligence outcome. Forward valuations for companies like this are highly dependent on the number of verified actual users and if there are fewer than advertised then the valuation must be trimmed or the offer rescinded. I have not read the filings on this deal and do not know the breakup amount, if any.
How does Levine know that Musk is pretending? How can he know that?
Therefore he is just guessing. I guess he doesn't like Elon Musk.
But we have to keep talking about it! It’s so stupid!"
Who is making him talk about it?
'I don't recall ever seeing an ad on twitter.'
The only 'ads' are the relentless drumbeat of promoted trans/gay/progressive/DNC stories and tweets.
I am average, simple, and ignorant.
Musk says: I want to buy twitter
Twitter says : We don't like you, F-off a-hole.
Twitter people gather at the dive bar, begin realizing that somehow they can all make a lot of money by selling.
Twitter tells Musk, we like you now, ya got a deal.
Musk says F-off a-holes.
Twitter guys get teary eyed and sad and run for help to maintain a situation they vigorously resisted until greed took hold.
Achilles said...
"It is interesting to see people who are economically illiterate like Gadfly and Readering try to do some mind reading Elon Musk.
Not only do you look mean and petty, you also look really stupid."
They embarrass themselves.
Levine's over-use of "pretending" is a tell: Levine is projecting his own dishonesty onto Musk. It's all really simple:
Musk the humanitarian wants to make the world's de-facto public square into a no-censorship zone.
Musk the businessman doesn't want to over-pay for the company.
Anything beyond this is either projection or mind-reading.
The only 'ads' are the relentless drumbeat of promoted trans/gay/progressive/DNC stories and tweets.
I will admit to sometimes taking an inordinate pleasure in blocking those promotions on Twitter (more often, I suppose, they stream by without engaging my attention, as do the non-political ads that, apparently, no one else sees). But I also mute people who use obscene language or imagery in their tweets.
Like another well known person, Musk is simultaneously the stupidest and most incompetent businessman around, and the genius who sends most of NASA and Space Force payload into orbit. I am willing to wait til the last act on this drama.
Hard to believe there weren't representations on such issues in the agreement. Not my area but, absent provisions in the agreement explicitly addressing that issue (and, again, not my area, but I've seen a number of agreements and don't remember ever seeing such provisions), the issue is who has the burden of proving or disproving the validity of the representation. Intuitively, it seems that the person making the representation would need to prove that it's true, but I know nothing about the actual law in that area.
--gpm
I'm willing to bet that Musk knows a few more things about the legalities of this situation than does the author of this hit piece.
Also willing to bet that he has a few (?!) lawyers working for him on this. He's not just winging it.
"Another bullshit artist....He's got a rotten contract....I looked at his contract...." DJT 7/9/22.
There are lots of ads on Twitter. They show up in your feed as “promoted.”
"Now he is pretending to want to get out of the deal because of the bot problem."
Not just "the bot problem" but the size of "the bot problem."
The sellers claimed that "the bot problem" represented less than five percent of accounts. Elon Musk, after some investigation, believes that it is closer to ten percent -- double the seller's claim. We have no way of knowing which claim is true and it appears that nobody knows for sure ... but in any case, it is a material difference.
Musk negotiated to buy Twitter for something like 44 Billion...
He has a $1 billion walk away clause.
Twitter is saying they are going to sue for the whole 44 billion and force him to take the company. I'm not sure thats possible given the $1Bill penalty.
The interest on $1B pays for a LOT of lawyers. The one thing lawyers are good for is delay.
The market went down appreciably after Musk made his offer. Any delay gives a chance for the market to go back up. Any delay also gives him a negotiating position to settle. Twitter can sue, but it will only cause things to delay.
The horse may sing.
Since everyone is pulling stuff out of their hole, I'll add mine. Based on what I've seen reported (almost certainly by people who have never seen the contract), I would guess that the contractual representation is not specifically about bots, but rather is a broader rep about SEC filings being true. If it was a specific rep about bots, twitter would have been extremely careful to limit the rep to something they could prove.
If it's just a naked representation, then it's not clear that he would have the right to terminate. In theory, the contract could provide that he still must close and that his sole remedy is to recover damages.
More likely, there is a closing condition that says the reps and warranties must be true. But then it likely includes the caveat "unless the failure to be true does not have a material adverse effect" or something to that effect.
So Musk likely carries the burden of proof that the rep is not true, and twitter probably carries the burden of proof that any understatement of bots is not material.
An alternative possibility is that MAE is not in the contract, but rather arises out of case law to say you can't terminate a contract over a technical and immaterial default; the default must be meaningful, i.e. material and adverse. In that case, Musk probably would have the burden of proof on the falsity and the materiality.
Uptick in account nuking since Elon backed out.
Here's a data point to consider. I'm a self-published author. I'm immersed in that world. I belong to two Facebook groups that have roughly 60,000 members worldwide. We advertise our books.
Our two biggest advertising markets are Amazon and Facebook. That's just about all we talk about when it comes to advertising. We do other forms of marketing, too, but when it comes to paying money for ads, it's those platforms.
We do not advertise on Twitter. We do not talk about advertising on Twitter. I've never see a case study on someone's attempt to advertise on Twitter.
I'm sure there are authors who are trying the platform. But among those who want to make money, we don't use Twitter. Amazon and Facebook (shitty as it is to use) are the places to spend.
That says a lot to me because our ad campaigns are based on achieving a measurable result. We advertise for readers, or to send them to buy our books. We can see if an ad campaign is effective or not. We don't advertise for exposure or brand recognition. We advertise to get results, and if we don't get it, we move on.
To those who advertise and get measurable results, Twitter is ignored.
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