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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

TWITTER, INC.,

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Plaintiff and

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counterclaim defendant,)

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v.

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CA No. 2022-0613-KSJM

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ELON R. MUSK, X HOLDINGS I, INC.,

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and X HOLDINGS II, INC.,

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Defendants and

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Counterclaim Plaintiffs.

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PLAINTIFF’S REPLY TO VERIFIED COUNTERCLAIMS

Plaintiff Twitter, Inc. (“Twitter”), by and through its undersigned counsel, replies as follows to the Verified Counterclaims (the “Counterclaims”) of Elon R. Musk (“Musk”), X Holdings I, Inc., and X Holdings II, Inc. (each a “Defendant” and together, “Defendants” or the “Musk Parties”) as follows.

INTRODUCTION

Musk begins his answer to Twitter’s claims for breach of their merger agreement with more than ninety pages of counterclaims. According to Musk, he- the billionaire founder of multiple companies, advised by Wall Street bankers and lawyers-was hoodwinked by Twitter into signing a $44 billion merger agreement.

That story is as implausible and contrary to fact as it sounds. And it is just that-a story, imagined in an effort to escape a merger agreement that Musk no longer found attractive once the stock market-and along with it, his massive

personal wealth-declined in value. After spending months looking for an excuse to get out of the contract, Musk claimed to terminate it, explaining his supposed reasons for doing so in a July 8 letter to Twitter. When Twitter sued to enforce its rights and exposed the weakness of those reasons, Musk spent weeks coming up with more supposed reasons-theCounterclaims-which offer up an entirely new set of excuses for his breach.

The counterclaims are a made-for-litigation tale that is contradicted by the evidence and common sense. Musk invents Twitter representations never made and then tries to wield, selectively, the extensive confidential data Twitter provided him to conjure a breach of those purported representations. Yet Musk simultaneously and incoherently asserts that Twitter breached the merger agreement by stonewalling his information requests. As explained below and will be demonstrated at trial, the counterclaims are actually inaccurate, legally insufficient, and commercially irrelevant:

The counterclaims fail to justify Musk’s plan to dishonor the merger agreement. Musk claims that he has the right to walk away from the deal if Twitter was “miscounting” the number of false or spam accounts on its platform. That is incorrect-as the facts and terms of the merger agreement show. When Musk offered to buy Twitter, he did not ask for and Twitter did not make any representations regarding the number of false or spam accounts. The merger

Agreement does not contain a single reference to false or spam accounts. Nor did Musk ask Twitter for any information to “verify” the number of false or spam accounts before he entered into the merger agreement. To the contrary, Musk forwent all due diligence-giving Twitter twenty-four hours to accept his take-it-or-leave-it offer before he would present it directly to Twitter’s stockholders.

What Musk did ask for and what he got was a customary representation that Twitter’s SEC filings since January 1, 2022 did not contain any false or misleading statement of material fact, with no right to terminate the deal based on any inaccuracies in those filings unless they have a “material adverse effect” on Twitter, as narrowly defined in the “seller-friendly” merger agreement. Musk neither sought nor obtained any “information rights” that would allow him to investigate the accuracy of those SEC filings as part of some post-signing due diligence project. All Musk got a limited right to receive information only for “a reasonable business purpose related to the consumption” of the merger-that is, for the purpose of closing the deal, not abandoning it. Musk’s repeated mischaracterizations of the merger agreement cannot change its plain words.

The facts Musk pleads do not even state a claim. In the disclosure Musk claims was false or misleading, Twitter stated: “We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the fourth quarter of 2021 represented fewer than 5% of our mDAU”

or “monetizable daily active users,” which Twitter defines not as all accounts, but only as accounts who logged in or were otherwise authenticated and accessed Twitter through a variety of ways on any given day. Twitter 2021 10-K at 5, 24. Twitter cautioned that “[i]n making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated.” id. at 24.

Musk does not identify any false or misleading statement of fact in this disclosure. Instead, he asserts that his own analysis, using a publicly available website, indicates that false or spam accounts constitute at least 10% of Twitter’s monetizable daily active users. But that claim is untenable on its face, because Musk is not measuring the same thing as Twitter or even using the same data as Twitter. Musk can produce a higher estimate only by running a data set neither limited to nor inclusive of mDAU through a generic web tool that designated his own Twitter account a likely “bot.” The result is a distortion that Musk is hoping will nonetheless make waves.

Musk also attacks Twitter’s process for estimating the proportion of false or spam accounts among monetizable daily active users as unreasonable because Twitter’s quarterly estimates are based on daily samples of 100 mDAU, combined for a total sample of approximately 9,000 mDAU per quarter. But attacking on

Estimate as unreliable based merely on the size of the sample relative to the size of the population is an elementary statistical error.

Unable to identify any false or misleading statement in Twitter’s disclosures regarding false or spam accounts, Musk takes a swing at alleged inaccuracies in the company’s disclosures about the implications of the mDAU metric generally. Musk just now invented this new pretext for avoiding the merger agreement, as these supposed inaccuracies are nowhere mentioned in his July 8 letter to Twitter explaining the bases for his purported termination of the merger agreement, nor in any other communication with Twitter since signing the merger agreement. In any event, Twitter never made the disclosures he now asserts are false. For example, Musk says Twitter misled investors when it “represents[ed]” that the mDAU metric “is determinative of ‘long-term financial performance.'” While Twitter has repeatedly described mDAU as an indicator of revenue growth, Twitter has not described mDAU as solely “determinative” of either revenue growth or long-term financial performance. Twitter’s actual disclosures concerning mDAU as a business metric make this clear. One example: “Our mDAU and their level of engagement with advertising are critical to our success and our long-term financial performance will continue to be significantly determined by our success in increasing the growth rate of our mDAU as well as the number of ad engagements.” Twitter 2021 10-K at 13 (emphasis added). Musk also asserts that Twitter’s disclosures misleadingly

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Twitter Inc. published this content on 04 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 Aug 2022 21:36:08 UTC.

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Analyst Recommendations on TWITTER, INC.

Sales 2022 5 467 m

Net income 2022 -32.2M

Net cash 2022 3 154 m

P/E ratio 2022 -432x
Yield 2022
capitalization 31 372 m
31 372 m
EV / Sales 2022 5.16x
EV / Sales 2023 4.48x
Nbr of Employees 7 500
free float 83.1%

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Mean consensus HOLD
Number of Analysts 35
Last close price $41.06
Average target price $42.63
Spread / Average Target 3.83%

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