EX-99.

P
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tm2220599d1_ex99-p.htm
EXHIBIT 99.P
 
Exhibit P
 
Skadden,
Arps, Slate, Meagher & Flom llp
525 UNIVERSITY
AVENUE
PALO ALTO,
CALIFORNIA 94301
______
 
TEL:
(650) 470-4500
FAX: (650) 470-4570
www.skadden.com
 
 
July 8, 2022
 
Twitter, Inc.
1355 Market Street, Suite 900
San Francisco, CA 94103
Attn: Vijaya Gadde, Chief Legal Officer
 
Dear Ms. Gadde:
 
We refer to (i) the Agreement
and Plan of Merger by and among X Holdings I, Inc., X Holdings II, Inc. and
Twitter, Inc. dated as of April 25, 2022
(the “Merger Agreement”) and (ii) our letter to you dated as of June 6, 2022
(the “June 6 Letter”).
As further described below, Mr. Musk is terminating the Merger Agreement because Twitter is
in material breach of multiple provisions
of that Agreement, appears to have made false and misleading
representations upon which Mr.  Musk relied when entering into the Merger
Agreement, and is likely to suffer a
Company Material Adverse Effect (as that term is defined in the Merger Agreement).
 
While Section 6.4 of
the Merger Agreement requires Twitter to provide Mr. Musk and his advisors all data
and information that Mr.  Musk requests “for
any reasonable business purpose related to the consummation of the
transaction,” Twitter has not complied with its contractual obligations.
For nearly two months, Mr. Musk has sought
the data and information necessary to “make an independent assessment of the prevalence
of fake or spam accounts
on Twitter’s platform” (our letter to you dated May 25, 2022 (the “May 25 Letter”)).
This information is fundamental
to Twitter’s business and financial performance and is necessary to consummate the transactions
contemplated by the
Merger Agreement because it is needed to ensure Twitter’s satisfaction of the conditions to closing, to facilitate
Mr. Musk’s financing and financial planning for the transaction, and to engage in transition planning for the business.
Twitter
has failed or refused to provide this information. Sometimes Twitter has ignored Mr.  Musk’s requests,
sometimes it has rejected
them for reasons that appear to be unjustified, and sometimes it has claimed to comply
while giving Mr. Musk incomplete or unusable
information.
 

  1  
 

 
Mr.  Musk and his financial
advisors at Morgan Stanley have been requesting critical information from
Twitter as far back as May  9, 2022—and repeatedly
since then—on the relationship between Twitter’s disclosed
mDAU figures and the prevalence of false or spam accounts on the
platform. If there were ever any doubt as to the
nature of these information requests, the May 25 Letter made clear that Mr. Musk’s
goal was to understand how many
of Twitter’s claimed mDAUs were, in fact, fake or spam accounts. That letter noted that “Items
1.03 to 1.13 of the
diligence request list contain high-priority requests for enterprise data and other information intended to enable
Mr.  Musk and his advisors to make an independent assessment of the prevalence of fake or spam accounts on
Twitter’s platform…”
The letter then provided Twitter with a detailed list of requests to this effect.
 
Since then, Mr. Musk
has provided numerous additional follow-up requests, all aimed at filling the gaps in
the incomplete information that Twitter provided
in response to his broad requests for information relating to
Twitter’s reported mDAU counts and reported estimates of false and
spam accounts.1 For example, in our letter to
you dated June  29, 2022 (the “June  29 Letter”), we referenced
Mr.  Musk’s request in the May  25 Letter for
“information that would allow him ‘to make an independent assessment
of the prevalence of fake or spam accounts
on Twitter’s platform.’” Because Twitter, by its own admission, provided
only incomplete data that was not sufficient
to perform such an independent assessment,2 the June 29 Letter “endeavored
to be even more specific, and to reduce
the burden of the [original] request,” by identifying a specific subset of high priority
information, responsive to
Mr. Musk’s prior requests, for Twitter to immediately make available.
 
 

1
Mr. Musk sought the same information in letters dated June 6, 2022, June 17, 2022, and June 29, 2022. In
each of these letters,
Mr. Musk referenced his information rights under Section 6.4 of the Merger Agreement. Twitter
has thus been on notice of the information
sought by Mr. Musk—and the contractual bases for these requests—for
two months. For the past month, Mr. Musk has been clear
that he views Twitter’s non-responsiveness as a material
breach of the Merger Agreement giving him the right to terminate the Merger
Agreement if uncured. See June 6,
2022 (explaining that Twitter was “refusing to comply with its obligations under the Merger
Agreement”). Thus, Mr.
Musk has been clear about his requests, his right to seek such information, and his view regarding Twitter’s
material
breach of the Merger Agreement.
2
See your letter to us dated June 20, 2022 (noting that the information Twitter was agreeing to provide was
“insufficient
to perform the spam analysis that [Mr. Musk] purport[s] to wish to do.”).
 

  2  
 

 
Notwithstanding these repeated
requests over the past two months, Twitter has still failed to provide much of
the data and information responsive to Mr. Musk’s
repeated requests, including, but not limited to:
 
1. Information related to Twitter’s process for auditing the inclusion of spam and fake accounts
in mDAU.
Twitter has still not provided much of the information specifically requested by Mr. Musk in Sections
1.01-1.03 of the
May 19 diligence request list that is necessary for him to make an assessment of the
prevalence of false or spam accounts on its
website. As recently as the June  29 Letter, Mr.  Musk
reiterated this long-standing request for information related to Twitter’s
sampling process for detecting
fake accounts. The June  29 Letter identified specific data necessary to enable Mr.  Musk to
independently
verify Twitter’s representations regarding the number of mDAU on its platform—
including, but not limited to (1)  daily
global mDAU data since October  1, 2020; (2)  information
regarding the sampling population for mDAU, including whether the mDAU
population used for
auditing spam and false accounts is the same mDAU population used for quarterly reporting;
(3) outputs of each
step of the sampling process for each day during the weeks of January 30, 2022 and
June  19, 2022; (4)  documentation or
other guidance provided to contractor agents used for auditing
mDAU samples; (5) information regarding the user interface of Twitter’s
ADAP tool and any internal
tools used by the contractor agents; and (6) mDAU audit sampling information, including anonymized
information
identifying the contractor agents and Quality Analyst that reviewed each sampled account,
the designation given by each contractor agent
and Quality Analyst, and the current status of any
accounts labelled “compromised.” A subsequent request along these lines
should not have been
necessary, as this information should have been provided in response to Mr. Musk’s original diligence
request. Yet, to date, Twitter has not provided any of this information.
 
2. Information related to Twitter’s process for identifying and suspending spam and fake accounts.
In
addition to information regarding Twitter’s mDAU audits, the June 29 Letter also reiterated requests for
data specifically
identified in Sections 1.04-1.05 of the May 19 diligence request list regarding Twitter’s
methodology and performance data
relating to identification and suspension of spam and false accounts,
including, but not limited to, information regarding account suspensions,
including information
sufficient to identify daily numbers of account suspensions since October 2020 and numbers of account
suspensions
for each of Twitter’s internal reasons for suspension. In addition, during the June 30, 2022
call, Twitter’s representatives
indicated for the first time that the workflow and processes for detecting
spam and false accounts in the mDAU population is different
and separate from the workflow and
processes for identifying and suspending accounts in violation of Twitter’s policies. On that
call, Twitter
indicated that it would not be willing to provide information regarding the methodologies employed to
identify and suspend
such accounts.
 

  3  
 

 
3. Daily measures of mDAU for the past eight (8)  quarters. On June  17, 2022 (the “June  17
Letter”)
Mr. Musk reiterated his request for “access to the sample set used and calculations performed, as well as
any
related reports or analysis, to support Twitter’s representation that fewer than 5% of its mDAUs are
false or spam account.”
To that end, Mr. Musk requested that Twitter provide “daily measures of mDAU
for the previous eight quarters, and through the
present.” This information is derivative of the
information Mr. Musk first sought in Sections 1.01-1.03 of the May 19
diligence request list. Although
Twitter has provided certain summary data regarding the mDAU calculations, Twitter has not provided
the
complete daily measures as requested.
 
4. Board materials related to Twitter’s mDAU calculations. In the June 17 Letter, Mr. Musk
requested a
variety of board materials and communications related to Twitter’s mDAU metric, its calculation of the
number of spam
and false accounts, its disclosure of the mDAU metric, and the company’s disclosure of
the number of spam accounts on the platform.
Twitter has provided an incomplete data set in response
to this request, and has not provided information sufficient to enable Mr. Musk
to make an independent
assessment of Twitter’s board and management’s understanding of its mDAU metric.
 
5. Materials related to Twitter’s financial condition. Mr. Musk is entitled, under Section 6.4
of the Merger
Agreement to “all information concerning the business … of the Company … for any reasonable
business
purpose related to the consummation of the transactions” and under Section 6.11 of the Merger
Agreement, to information “reasonably
requested” in connection with his efforts to secure the debt
financing necessary to consummate the transaction. To that end, Mr.  Musk
requested on June  17 a
variety of board materials, including a working, bottoms-up financial model for 2022, a budget for
2022, an
updated draft plan or budget, and a working copy of Goldman Sachs’ valuation model
underlying its fairness opinion. Twitter
has provided only a pdf copy of Goldman Sachs’ final Board
presentation.
 

  4  
 

 
In short, Twitter has not
provided information that Mr.  Musk has requested for nearly two months
notwithstanding his repeated, detailed clarifications intended
to simplify Twitter’s identification, collection, and
disclosure of the most relevant information sought in Mr. Musk’s
original requests.
 
While Twitter has provided
some information, that information has come with strings attached, use
limitations or other artificial formatting features, which has
rendered some of the information minimally useful to
Mr.  Musk and his advisors. For example, when Twitter finally provided access
to the eight developer “APIs” first
explicitly requested by Mr.  Musk in the May  25 Letter, those APIs contained
a rate limit lower than what Twitter
provides to its largest enterprise customers. Twitter only offered to provide Mr. Musk with
the same level of access as
some of its customers after we explained that throttling the rate limit prevented Mr.  Musk and
his advisors from
performing the analysis that he wished to conduct in any reasonable period of time.
 
Additionally, those APIs contained
an artificial “cap” on the number of queries that Mr. Musk and his team
can run regardless of the rate limit—an
issue that initially prevented Mr. Musk and his advisors from completing an
analysis of the data in any reasonable period of time.
Mr. Musk raised this issue as soon as he became aware of it, in
the first paragraph of the June 29 Letter: “we have just
been informed by our data experts that Twitter has placed an
artificial cap on the number of searches our experts can perform with this
data, which is now preventing Mr. Musk
and his team from doing their analysis.” That cap was not removed until July 6,
after Mr. Musk demanded its removal
for a second time.
 
Based on the foregoing refusal
to provide information that Mr. Musk has been requesting since May 9, 2022,
Twitter is in breach of Sections 6.4 and 6.11 of
the Merger Agreement.
 
Despite public speculation
on this point, Mr.  Musk did not waive his right to review Twitter’s data and
information simply because he chose not to seek
this data and information before entering into the Merger
Agreement. In fact, he negotiated access and information rights within the Merger
Agreement precisely so that he
could review data and information that is important to Twitter’s business before financing and completing
the
transaction.
 

  5  
 

 
As Twitter has been on notice
of its breach since at least June 6, 2022, any cure period afforded to Twitter
under the Merger Agreement has now lapsed. Accordingly,
Mr. Musk hereby exercises X Holdings I, Inc.’s right to
terminate the Merger Agreement and abandon the transaction contemplated
thereby, and this letter constitutes formal
notice of X Holding I, Inc.’s termination of the Merger Agreement pursuant to Section 8.1(d)(i) thereof.
 
In addition to the foregoing,
Twitter is in breach of the Merger Agreement because the Merger Agreement
appears to contain materially inaccurate representations. Specifically,
in the Merger Agreement, Twitter represented
that no documents that Twitter filed with the U.S. Securities and Exchange Commission since
January  1, 2022,
included any “untrue statement of a material fact” (Section 4.6(a)). Twitter has repeatedly made
statements in such
filings regarding the portion of its mDAUs that are false or spam, including statements that: “We have performed
an
internal review of a sample of accounts and estimate that the average of false or spam accounts during the first
quarter of 2022 represented
fewer than 5% of our mDAU during the quarter,” and “After we determine an account is
spam, malicious automation, or fake,
we stop counting it in our mDAU, or other related metrics.” Mr. Musk relied on
this representation in the Merger Agreement
(and Twitter’s numerous public statements regarding false and spam
accounts in its publicly filed SEC documents) when agreeing to
enter into the Merger Agreement. Mr. Musk has the
right to seek rescission of the Merger Agreement in the event these material representations
are determined to be
false.
 
Although Twitter has not yet
provided complete information to Mr.  Musk that would enable him to do a
complete and comprehensive review of spam and fake accounts
on Twitter’s platform, he has been able to partially
and preliminarily analyze the accuracy of Twitter’s disclosure regarding
its mDAU. While this analysis remains
ongoing, all indications suggest that several of Twitter’s public disclosures regarding its
mDAUs are either false or
materially misleading. First, although Twitter has consistently represented in securities filings that
“fewer than 5%”
of its mDAU are false or spam accounts, based on the information provided by Twitter to date, it appears that
Twitter
is dramatically understating the proportion of spam and false accounts represented in its mDAU count. Preliminary
analysis by
Mr. Musk’s advisors of the information provided by Twitter to date causes Mr. Musk to strongly believe
that the proportion
of false and spam accounts included in the reported mDAU count is wildly higher than 5%.
Second, Twitter’s disclosure that
it ceases to count fake or spam users in its mDAU when it determines that those
users are fake appears to be false. Instead, we understand,
based on Twitter’s representations during a June 30, 2022
call with us, that Twitter includes accounts that have been suspended—and
thus are known to be fake or spam—in its
quarterly mDAU count even when it is aware that the suspended accounts were included in
mDAU for that quarter.
Last, Twitter has represented that it is “continually seeking to improve our ability to estimate the
total number of
spam accounts and eliminate them from the calculation of our mDAU…” But, Twitter’s process for calculating
its
mDAU, and the percentage of mDAU comprised of non-monetizable spam accounts, appears to be arbitrary and ad
hoc. Disclosing that Twitter
has a reasoned process for calculating mDAU when the opposite is true would be false
and misleading.
 

  6  
 

 
Twitter’s representation
in the Merger Agreement regarding the accuracy of its SEC disclosures relating to
false and spam accounts may have also caused, or is
reasonably likely to result in, a Company Material Adverse
Effect, which may form an additional basis for terminating the Merger Agreement.
While Mr. Musk and his advisors
continue to investigate the exact nature and extent of this event, Mr. Musk has reason to believe
that the true number
of false or spam accounts on Twitter’s platform is substantially higher than the amount of less than 5% represented
by
Twitter in its SEC filings. Twitter’s true mDAU count is a key component of the company’s business, given that
approximately
90% of its revenue comes from advertisements. For this reason, to the extent that Twitter has
underrepresented the number of false or
spam accounts on its platform, that may constitute a Company Material
Adverse Effect under Section 7.2(b)(i) of the Merger Agreement.
Mr. Musk is also examining the company’s recent
financial performance and revised outlook, and is considering whether the company’s
declining business prospects
and financial outlook constitute a Company Material Adverse Effect giving Mr. Musk a separate and distinct
basis for
terminating the Merger Agreement.
 
Finally, Twitter also did
not comply with its obligations under Section 6.1 of the Merger Agreement to seek
and obtain consent before deviating from its obligation
to conduct its business in the ordinary course and “preserve
substantially intact the material components of its current business
organization.” Twitter’s conduct in firing two key,
high-ranking employees, its Revenue Product Lead and the General Manager
of Consumer, as well as announcing on
July 7 that it was laying off a third of its talent acquisition team, implicates the ordinary
course provision. Twitter has
also instituted a general hiring freeze which extends even to reconsideration of outstanding job offers.
Moreover,
three executives have resigned from Twitter since the Merger Agreement was signed: the Head of Data Science, the
Vice President
of Twitter Service, and a Vice President of Product Management for Health, Conversation, and
Growth. The Company has not received Parent’s
consent for changes in the conduct of its business, including for the
specific changes listed above. The Company’s actions therefore
constitute a material breach of Section  6.1 of the
Merger Agreement.
 

  7  
 

 
Accordingly, for all of these
reasons, Mr. Musk hereby exercises X Holdings I, Inc.’s right to terminate the
Merger Agreement and abandon the transaction
contemplated thereby, and this letter constitutes formal notice of X
Holding I, Inc.’s termination of the Merger Agreement
pursuant to Section 8.1(d)(i) thereof.
 
  Sincerely,
   
   
  /s/ Mike Ringler
  Mike Ringler
  Skadden, Arps, Slate, Meagher &
Flom LLP
 
cc:
Katherine A. Martin, Wilson Sonsini Goodrich & Rosati, Professional Corporation
Martin W. Korman, Wilson Sonsini Goodrich & Rosati, Professional Corporation
Douglas K. Schnell, Wilson Sonsini Goodrich & Rosati, Professional Corporation
Remi P Korenblit, Wilson Sonsini Goodrich & Rosati, Professional Corporation
Alan Klein, Simpson Thacher & Bartlett LLP
Anthony F. Vernace, Simpson Thacher & Bartlett LLP
Katherine M. Krause, Simpson Thacher & Bartlett LLP
 
Elon Musk
Alex Spiro, Quinn Emanuel Urquhart & Sullivan, LLP
Andrew Rossman, Quinn Emanuel Urquhart & Sullivan, LLP
 

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