Elon Musk asserted his right to withhold completion of the Twitter deal, arguing that the social network’s response to requests for information about fake accounts, spam, and automated bots amounts to a breach of obligations tied to the 44 billion dollar merger. He contends that Twitter has not fulfilled its information rights under the agreement and therefore may be obstructing the overall process.
The market responded with a drop in Twitter shares, which fell more than 4% as trading opened, hovering around a price of 38 dollars per share, well below the 54 dollar per share that had been proposed in the acquisition offer spearheaded by Musk.
A letter from Musk’s legal team, filed with the United States Securities and Exchange Commission, states that Twitter’s conduct to date signals an active resistance to information rights under the merger agreement. The document characterizes these actions as a material breach and preserves Musk’s right to walk away or terminate the deal.
The statement makes clear that the company reserves all remedies available under the merger agreement, including the option to terminate the transaction if the breaches persist or escalate.
On May 13, Musk announced a temporary pause in the purchase while awaiting more details about the share of fake accounts and bots within the platform’s active user base. He reiterated that his interest in acquiring the company remained strong and that the pursuit would continue.
In its SEC filings, Twitter acknowledged the inherent difficulties in measuring user activity and engagement. The company noted that the metrics used to track the platform’s audience could be affected by ongoing efforts to curb malicious activity, including spam, automation, and fake accounts.
After an internal review of a sample of accounts, Twitter reported that the average share of fake accounts, referred to as spam or automated accounts, represented less than 5% of monthly active users in the first quarter of 2022.
Twitter also admitted that the figure may not accurately reflect the true number of such accounts, acknowledging that the actual count of active fake or spam accounts could be higher than previously estimated.
In its latest results presentation for the first quarter, Twitter disclosed a bug had caused an overestimation of monetizable daily active users from the first quarter of 2019 through the fourth quarter of 2021 by nearly two million accounts.
Subsequently, Twitter noted that a feature introduced in March 2019, which allowed multiple accounts to be linked under a primary account, had caused an overcounting error. Actions taken through the primary account could be attributed to all linked accounts as active users, inflating the totals.
As a result, the company reported an overestimation of monetizable daily active users for the period from 2019 to 2021, leading to a revised count that reduced mDAU to 214.7 million at the end of 2021, down from the initially estimated 216.6 million.
Specifically, the internal review indicated a surplus in international mDAU by about 1.5 million, adjusting from 178.8 million to 177.3 million. In the United States, the estimate was 37.8 million mDAU, with the updated figures showing 37.5 million after corrections were applied.
This marks the second instance in which Twitter has acknowledged a substantial miscalculation in a key metric that has long attracted attention from investors and analysts since 2017, when the platform faced scrutiny over its reported active user counts.