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    Media Center / Legal Updates


    July 21, 2022

    Elon Musk invested in Twitter in early April, becoming the company’s largest shareholder. Stock prices increased significantly. Soon after, he began bidding to purchase all of Twitter, and after some back and forth, he agreed to pay $44 billion for Twitter. Things start to unravel shortly after that.

    A few weeks ago I walked through Musk’s contract with Twitter on the Contract Teardown show with Mike Whelan. Here’s the link –

    So far it looks like we were pretty on the money with our predictions – Twitter’s counsel filed a complaint in the Delaware Chancery Court seeking specific performance (i.e. asking the court to force Musk to go ahead with the deal) and a request for an expedited hearing – which was granted by the court on Tuesday.

    Ignoring Musk’s claims about Twitter’s breach of its obligation to share information and its allegation that by firing some key personnel Twitter had breached the agreement, the nub of the issue is:

    • are Twitter’s “spam” and mDAUs (monetizable Daily Active Users) estimates as disclosed in its SEC filings materially incorrect; and
    • if that is true, does this fact constitute a Material Adverse Effect?

    Rather than get into a detailed analysis of the Delaware court’s position on buyers invoking MAE outs (it rarely happens), is there a simple plain English way to think about this?

    The word “effect” is defined as:

    a change which is a result or consequence of an action or other cause.

    Let’s assume that actual Twitter spam is materially greater than stated by Twitter in its SEC filings. This would be the cause…I think.

    So what is the change (or effect)?

    mDAUs (monetizable Daily Active Users) is a non-accounting metric considered to be a measure of the success for platforms like Twitter – it is not a financial/accounting metric per se. However, it is a metric that is extremely important to advertisers – because the more “real” people are reached by your “ad” the more you are willing to pay.

    In its filings Twitter estimated the amount of spam on its platform to be 5%[1].

    If the higher end of Musk’s speculation is correct and the actual spam number is closer to 20%, this would translate into a significant reduction in the number of mDAUs. The change (or effect) is that advertisers will not pay as much to advertise on Twitter – ultimately impacting Twitter’s revenues (and the perceived value of the company).

    So, while the momentum of the case seems to be shifting to Twitter, Musk’s position is not without merit. Even though Twitter was clear in disclosing that spam numbers are only an estimate, if there is a 4x difference – that feels pretty material.

    The coming weeks will be very interesting. The threat of specific performance is a large stick and Musk has a lot of personal financial exposure. As cited in the Twitter’s complaint:

    Musk remains personally responsible for $33.5 billion of the approximately $44 billion required to complete the transaction.


    Will be fascinating to see how this unfolds.

    James Ra’anan, Adv. is a Partner in APM’s Hi-tech and Venture Capital Practice and also head of the firm’s Telecom activities. He has over 25 years as counsel to private and public companies globally, specializing in M&A and complex B2B commercial transactions. He is admitted to the bar in Israel and New York.

    [1] Incidentally, Twitter already recast its numbers to reflect a 2m overstatement in the number of mDAUs.