Elon Musk did NOT waive due diligence when he agreed to buy Twitter. In fact, the Merger Agreement lays out a six-month period in which Twitter would have the obligation to provide Elon with any information he and/or his lenders might need to determine if the information the company has represented and warranted was true and accurate. For example, in the Merger Agreement, Twitter represented that everything in their SEC filings was true and accurate as of January 1st, 2022. Prior to closing the transaction, Elon would be given a six-month due diligence period to confirm the accuracy of that information so that he could provide assurances to himself, his fellow equity investors, and his lenders - at the end of the day, $44 billion is a lot of money.

In any discussion of Twitter vs Elon Musk, the most common refrain you’ll hear in criticism of the billionaire is the claim that he waived due diligence when he agreed to buy Twitter. To support this false claim critics will often cite the SEC filing that includes this language:

“At the time of delivery, the Proposal was also subject to the completion of financing and business due diligence, but it is no longer subject to financing as a result of the Reporting Person’s receipt of the financing commitments described below and is no longer subject to business due diligence.”1

I believe this language is the culprit responsible for the false belief that Elon Musk waived due diligence. In reality, Elon waived his discretionary right to terminate the deal based on the completion of due diligence. Twitter was unlikely to agree to terms that would make closing contingent on Elon’s ‘happiness’ with what he found after spending months digging through the company’s data, so the billionaire agreed to waive his discretionary right to terminate. Instead, Elon agreed he would only be able to terminate the deal if during his diligence he found that the company had misrepresented something it had represented and warranted in the Merger Agreement - for example, the information provided to the SEC.

Mike Ringler, one of Elon’s lawyers, even addresses the common misconception that his client ‘waived due diligence’ in his breakup letter with the company explaining,

“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.”2

That being said, in their complaint3, Twitter makes it clear they didn’t provide Elon with all of the information he demanded during the diligence process citing various legal hurdles and their belief that he wasn’t asking for the information in good faith. If you believe, as I do, that Elon was having a case of ‘buyers-remorse’ it isn’t hard to believe that the billionaire might attempt to make unreasonable information demands to cause Twitter to technically ‘breach’ their obligations in the Merger Agreement.

Of course, everyone should also be reminded:

SEC Rule 10b-5. Twitter can be liable for omissions of OR misleading material facts. Waiving due diligence does not mean you have to accept a fraudulent disclosure (understated bots and/or overstated users)

Eventually, Chancellor Kathaleen McCormick will decide which party is in the right but in the meantime, we’ll get to enjoy the show.

UPDATE JULY 20th

Sadly many remain unconvinced. I will try another angle to try to help. If “diligence” was truly waived and not just as a condition of closing there would be ZERO reasons for Twitter to engage in diligence sessions with Elon and his team, right? Let’s take a look at Twitter’s discussion of Elon’s diligence process in their complaint filed in Delaware:

For example on Page 29 of their complaint Twitter explains:

"Following up on or about May 9, Musk’s bankers at Morgan Stanley added entries to their diligence tracker requesting user-related information, including a request for “User database containing key metrics including, but not limited to, number of users, number of verified users, number of monthly active users, number of handles, etc.”

Musk was doing something called "diligence" and Twitter claims they were helping him do it. At the bottom of that same page Twitter explains:

"Early on May 13, 2022, in advance of a diligence meeting that had on May 13, 2022, in advance of a diligence meeting that had been scheduled to discuss the data Twitter had provided, Musk Tweet..."

Why would Twitter be holding a 'diligence' meeting if diligence had been waived? Seems weird. On Page 31 Twitter admits it has an obligation to help Musk with diligence:

"Cognizant of its own obligations under the merger agreement, Twitter proceeded with the May 13 diligence meeting, which lasted for about two hours. of its own obligations under the merger agreement, Twitter proceeded with the May 13 diligence meeting, which lasted for about two hours. During this session, Twitter explained, among other things, that its spam estimation process entails daily sampling for a total set of approximately 9,000 accounts per quarter that are manually reviewed"

Again, Twitter implies they have obligations to provide diligence to Musk. Again, why do they keep talking about diligence if there is no diligence since it was waived? Then on Page 36 Twitter admits it host a THIRD diligence session with Musk's team:

"On May 21, 2022, Twitter hosted a third diligence session with Musk’s team and yet again discussed Twitter’s processes for calculating mDAU and estimates of spam or false accounts. May 21, 2022, Twitter hosted a third diligence session with Musk’s team and yet again discussed Twitter’s processes for calculating mDAU and estimates of spam or false accounts. Twitter also provided a detailed summary document describing the process the company uses to estimate spam as a percentage of mDAU"

Why do they keep working on diligence if it was waived? Maybe diligence wasn't waived and the requirement to provide information to allow it to be done - but just the diligence process as a condition of closing? After the third diligence session, Twitter had SEVERAL more? What are these guys doing? Did they forget there is no diligence?

"It extended an ongoing offer to engage with Musk and his representatives regarding its calculation of mDAU, and held several more diligence sessions through the end of May. extended an ongoing offer to engage with Musk and his representatives regarding its calculation of mDAU, and held several more diligence sessions through the end of May..."

By Page 50 Twitter does start to complain pointing out that Musk is likely just trying to ask for so much they’ll have to say giving him the ability to claim they are in breach of the agreement which requires them to provide information for his diligence process. The point out that Elon’s requests are TOO broad because he waived the right to terminate the deal based on what he found in due diligence. Of course, there is nothing in the agreement that limits the information Twitter has to provide Elon except if doing so would be illegal or harm the business.

“Twitter has provided defendants far more information than they are entitled to under the merger agreement. Section 6.4 serves the narrow purpose of giving Parent reasonable access to information necessary to close the merger. It does not give defendants a broad right to conduct post-signing due diligence of a kind they specifically forswore pre-signing. Much less does it give Musk the right to hunt for evidence supporting a bogus misrepresentation theory developed to try to torpedo the deal.”

At the end of the day, Twitter’s argument is that Elon should only be able to do ‘limited due diligence’ since he waived it as a condition of closing. They claim they’ve done more than was required. Elon disagrees.

THE FILINGS

INITIAL PLEADINGS

PRIMARY SOURCE DOCUMENTS

CASE SCHEDULING ORDER

CONFIDENTIALITY ORDER

MOTION TO EXPEDITE

3rd PARTY SUBPOENAS

…coming soon