4 ms·

Financing has strings. I’m sure his partners want to make sure the mDAU is accurate as well. The entire value of Twitter depends on it.

tptacek 4y ago
They can't want that, because it was a term Musk explicitly waived, publicly and notoriously, before he attempted to finance the deal. It was newsworthy, and well covered, that Musk secured the 13Bn of LBO debt in the first place.
- gabereiser 4y ago
  What the media says (including musk) and what the term sheet says are two different things. If he mentioned mDAU could be fraudulent to anyone involved, they would be interested to hear what he had to say about it. I believe though that this is a move to reduce the risk and monies he has to pay to try to get a better deal ($30b perhaps?)
  - admax88qqq 4y ago
    > they would be interested to hear what he had to say about it. They can be interested all they want, doesn't mean they can back out of a deal unless they can demonstrate fraud or gross negligence on behalf of Twitter.
    - tptacek 4y ago
      They can't just demonstrate "fraud" or "gross negligence". They have to demonstrate a "material adverse effect", which, as Matt Levine shorthands it, is something on the order of a 40% drop in profitability --- not the stock price, but the fundamentals of the company. Not happening.
      - dvt 4y ago
        [flagged]
        couchand 4y ago
        20% is on the order of 40%
        shkkmo 4y ago
        "in/on the order of" does not mean "the same order of magnitude as" by rather "approximately the same as". Nobody would call 20% approximately the same as 40% so you are incorrect.
        tptacek 4y ago
        All I know is, he's a former M&A lawyer, unlike any commenter here.
      - 1R 4y ago
        What if 40% of the percentage of users that twitter proposes are real people are actually bots? Wouldn't that qualify as material adverse effect?
        hef19898 4y ago
        Propably not if those users can, and are, monetized.
        JumpCrisscross 4y ago
        > Wouldn't that qualify as material adverse effect? Probably not. There has been one MAC finding in the history of MACs. It was a trifecta of fraud, management throwing in the towel the moment the merger was agreed and a massive revenue drop. Musk’s only hope is to get his banks to pull financing. That’s going to be tough.
        jakelazaroff 4y ago
        Would that even work, though? It’s not like he can’t afford it; his money is just tied up in TSLA. Presumably the court can force him to liquidate his shares if his lenders somehow back out.
        HWR_14 4y ago
        No, I the two conditions other than a materially adverse effect that lets Musk back out are if his debt financing falls through or if the government stops it.
    - suzzer99 4y ago
      So the financiers do back out, then what? Twitter sues them for the full amount, and both parties end up settling for X% of the full amount?
      - martin8412 4y ago
        X=100
  - papercrane 4y ago
    > If he mentioned mDAU could be fraudulent to anyone involved One problem for Musk is he's been casting doubt on the bot numbers publicly, even before the deal. One of he's stated reasons for the deal was to deal with spam bots. Twitter has also reported basically the same 5% number in it's filings for years. If it really was a sticking point for Musk he should've done his due diligence before committing to to buy Twitter.
    - meatsauce 4y ago
      Well twitter is a cesspool of bots, mostly international actors, so I don't see how material facts are a problem.
contrast 4y ago
No, it doesn’t. The entire value of Twitter depends on their entire monetization. That comes from revenue per mDAU, not just mDAU. Why should a disinterested, objective financier care if $1 billion dollars of revenue came with a real figure of 20% spambots rather than the estimated 5%? That just means true revenue per mDAU is something like 18% better than estimated. If the real number is 50%, then true revenue per user is about double. If the real number is actually 99%, true revenue per user is about 20x. There would also probably be some very quick wins for improving the quality of the service. There may be an argument for needing accurate mDAU figures - but Musk isn’t making one, the financiers didn’t ask for them, the market has NEVER had accurate figures for social media anyway, and there’s no legal standard for it.
- smaryjerry 4y ago
  It’s not a good thing to have more bots at the same revenue because you aren’t just buying a companies past performance but their future performance. If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much.
  - Marsymars 4y ago
    > If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much. That’s if you assume that advertisers have no idea what the result of ad impressions are. (Which is an argument I’m sympathetic to, but isn’t flattering to the ad industry.) If they do have an idea of the results of ad impressions, it would mean that their ads are actually proportionally more effective than they thought, since their revenue brought in by ads has stayed the same but with fewer impressions.

tptacek 4y ago

They can't want that, because it was a term Musk explicitly waived, publicly and notoriously, before he attempted to finance the deal. It was newsworthy, and well covered, that Musk secured the 13Bn of LBO debt in the first place.

gabereiser 4y ago
What the media says (including musk) and what the term sheet says are two different things. If he mentioned mDAU could be fraudulent to anyone involved, they would be interested to hear what he had to say about it. I believe though that this is a move to reduce the risk and monies he has to pay to try to get a better deal ($30b perhaps?)
- admax88qqq 4y ago
  > they would be interested to hear what he had to say about it. They can be interested all they want, doesn't mean they can back out of a deal unless they can demonstrate fraud or gross negligence on behalf of Twitter.
  - tptacek 4y ago
    They can't just demonstrate "fraud" or "gross negligence". They have to demonstrate a "material adverse effect", which, as Matt Levine shorthands it, is something on the order of a 40% drop in profitability --- not the stock price, but the fundamentals of the company. Not happening.
    - dvt 4y ago
      [flagged]
      - couchand 4y ago
        20% is on the order of 40%
        shkkmo 4y ago
        "in/on the order of" does not mean "the same order of magnitude as" by rather "approximately the same as". Nobody would call 20% approximately the same as 40% so you are incorrect.
      - tptacek 4y ago
        All I know is, he's a former M&A lawyer, unlike any commenter here.
    - 1R 4y ago
      What if 40% of the percentage of users that twitter proposes are real people are actually bots? Wouldn't that qualify as material adverse effect?
      - hef19898 4y ago
        Propably not if those users can, and are, monetized.
      - JumpCrisscross 4y ago
        > Wouldn't that qualify as material adverse effect? Probably not. There has been one MAC finding in the history of MACs. It was a trifecta of fraud, management throwing in the towel the moment the merger was agreed and a massive revenue drop. Musk’s only hope is to get his banks to pull financing. That’s going to be tough.
        jakelazaroff 4y ago
        Would that even work, though? It’s not like he can’t afford it; his money is just tied up in TSLA. Presumably the court can force him to liquidate his shares if his lenders somehow back out.
        HWR_14 4y ago
        No, I the two conditions other than a materially adverse effect that lets Musk back out are if his debt financing falls through or if the government stops it.
  - suzzer99 4y ago
    So the financiers do back out, then what? Twitter sues them for the full amount, and both parties end up settling for X% of the full amount?
    - martin8412 4y ago
      X=100
- papercrane 4y ago
  > If he mentioned mDAU could be fraudulent to anyone involved One problem for Musk is he's been casting doubt on the bot numbers publicly, even before the deal. One of he's stated reasons for the deal was to deal with spam bots. Twitter has also reported basically the same 5% number in it's filings for years. If it really was a sticking point for Musk he should've done his due diligence before committing to to buy Twitter.
  - meatsauce 4y ago
    Well twitter is a cesspool of bots, mostly international actors, so I don't see how material facts are a problem.

contrast 4y ago

No, it doesn’t. The entire value of Twitter depends on their entire monetization. That comes from revenue per mDAU, not just mDAU. Why should a disinterested, objective financier care if $1 billion dollars of revenue came with a real figure of 20% spambots rather than the estimated 5%? That just means true revenue per mDAU is something like 18% better than estimated. If the real number is 50%, then true revenue per user is about double. If the real number is actually 99%, true revenue per user is about 20x. There would also probably be some very quick wins for improving the quality of the service. There may be an argument for needing accurate mDAU figures - but Musk isn’t making one, the financiers didn’t ask for them, the market has NEVER had accurate figures for social media anyway, and there’s no legal standard for it.

smaryjerry 4y ago
It’s not a good thing to have more bots at the same revenue because you aren’t just buying a companies past performance but their future performance. If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much.
- Marsymars 4y ago
  > If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much. That’s if you assume that advertisers have no idea what the result of ad impressions are. (Which is an argument I’m sympathetic to, but isn’t flattering to the ad industry.) If they do have an idea of the results of ad impressions, it would mean that their ads are actually proportionally more effective than they thought, since their revenue brought in by ads has stayed the same but with fewer impressions.