Now Elon Musk has signaled his intention Walk away from his $44 billion offer to buy TwitterThe fate of the influential social media network could be an epic court battle, involving months of expensive litigation and high-stakes negotiations by elite lawyers on both sides.
Mr. The question is whether Musk will be legally compelled to stick with his agreed acquisition or be allowed to back out by paying a 10-figure penalty.
Most legal experts say Twitter has the upper hand because Mr. Musk has attached some strings to his deal to buy the company, and the company is determined to enforce the deal.
But Mr. Musk revels in impulsiveness and bravado and is backed by a fleet of high-profile bankers and lawyers. Rather than engage in a protracted public fight with the world’s richest man and his followers, Twitter may come under pressure to find a quick and relatively peaceful solution — one that would preserve the company’s independence but leave it with a smaller financial base. condition.
Mr. Mike Ringler, a partner at Skadden, Arps, Slate, Meagher & Flom, who represents Musk, took to Twitter late Friday to announce that his client was dropping the acquisition. Mr. In his letter, Ringler said that Twitter said Mr. argued that it breached its contract with Musk by not providing him with detailed information on how it was taking action. False accounts. Mr. He added that Musk didn’t believe it.
Twitter’s board responded by saying it intended to complete the acquisition, and that Mr. He also said he would file a lawsuit against Musk in Delaware Chancery Court.
With Twitter in April Mr. The terms of the merger agreement reached by Musk are at the center of the controversy. His contract with Twitter allows him to pay a $1 billion fee to terminate his contract, but only under certain circumstances, such as losing debt financing. Pursuant to the agreement, Mr. Twitter must provide the data Musk needs.
Mr. Musk has requested. Throughout June, Mr. Lawyers for Musk and Twitter, Mr. They argued over how much data to share to satisfy Musk’s inquiries.
About the Twitter deal Mr. Musk said the valuations of tech companies, including Tesla, the electric vehicle company he runs, have suffered a sharp decline, a major source of his wealth. For comment, Mr. Musk did not respond.
Twitter says its spam statistics are accurate, but has declined to publicly describe how it detects and counts spam accounts because it uses personal information such as users’ phone numbers and other digital clues about their identities to determine whether an account is unreliable. A Twitter spokesperson declined to comment on Twitter’s plans to sue to enforce the merger agreement.
“The results: The court says Musk can walk away,” said David Larcker, a professor of accounting and corporate governance at Stanford University. “Another consequence is that he is bound to fulfill the contract and the court can enforce this. Or there may be some middle ground where there is a price revision.
As for Twitter, Mr. Closing Musk’s sale is imperative. As technology companies enjoy optimistic valuations, it is Mr. struck a deal with Musk; Some, like Snap and Meta, have now collapsed They face advertising pressure, global economic upheaval and rising inflation. Twitter’s shares have fallen about 30 percent since the deal was announced and trade below Mr. Musk’s offer price of $54.20.
Regarding Spam Mr. Legal experts said Musk’s dispute could be a ploy to force Twitter back to the bargaining table in hopes of getting a lower price.
While making the deal, Mr. No other buyers appeared to replace Musk’s white knight, making his offer the best Twitter could get.
Twitter’s trump card “Specific Performance Rule” This is Mr. Gives Musk the right to sue and force him to terminate the contract or until the loan funds he paid remain intact. Forced takeovers have happened before: In 2001, Tyson Foods tried to back out of its acquisition of meatpacker IBB, citing IBB’s financial problems and accounting irregularities. A Delaware court vice chancellor ruled Dyson should complete the acquisition,
But legal authority is different from practical reality. A lawsuit can cost millions in legal fees, take months to resolve and add to the already uncertain situation Nervous employees.
Contractual differences often end in settlements or price renegotiations. In 2020, luxury conglomerate LVMH Moët Hennessy Louis Vuitton It tried to renege on its $16 billion contract To buy Tiffany & Co., it would eventually get a discount of about $420 million.
“This stuff is a bargaining chip in an economic transaction,” said Charles Elson, a recently retired professor of corporate governance at the University of Delaware. “It’s all about the money.”
The lowest price is Mr. That would benefit Musk and his financial backers, especially as Twitter faces a financial crisis. But Mr. It has made it clear that it wants to force Musk.
The most damaging outcome for Twitter would be the collapse of the deal. Mr. Musk would have to show that Twitter materially and willfully breached the terms of its contract, which buyers have rarely encountered. Mr. Musk said. He argued that Twitter had misreported its spam statistics, and that the false statistics masked a serious problem in Twitter’s business.
A buyer has only once successfully argued in a Delaware court that a material change in the target company’s business gives it the ability to exit the deal cleanly. This happened in 2017 with the $3.7 billion acquisition of pharmaceutical company Acorn by health care company Fresenius Kapital. After Fresenius signed the deal, Acorn’s revenue plummeted and it faced whistle-blower allegations of slipping regulatory requirements.
Even if Twitter shows the merger did not breach the deal, a Delaware court could allow CEO Mr Musk to walk away with damages, as was the case with Apollo Global Management’s 2008 merger of chemical companies Huntsman and Hexion. (The cases ended in a broken agreement $1 billion settlement.)
Forcing an acquirer to buy a company is a complex process to oversee, and a principal does not want to order the acquirer to do something he will not ultimately follow through on, a particularly serious risk in this deal. A habit of breaking the law.
“The worst case scenario for a court is that it makes an order and he doesn’t comply, and they have to figure out what to do about it,” said Morgan Riggs, a professor at Vanderbilt Law School.
Mr. While Musk typically relies on a small circle of confidants, he has brought in a large legal team to oversee the Twitter acquisition. In addition to his personal attorney, Alex Spiro, he tapped attorneys from Skadden, Arps, Slate, Meagher & Flom.
Skadden is a corporate law firm with extensive experience arguing cases before Delaware courts, including an attempt to block LVMH’s takeover of Tiffany.
On its side, Twitter has appointed lawyers from two firms, Wilson Sonsini Goodrich & Rosatti and Simpson Thacher & Bartlett, to manage the deal. Wilson Soncini is a longtime legal adviser to Twitter, which built its reputation on deals in venture capital and technology. Simpson Thacher is a New York-based law firm with extensive experience in public company mergers and acquisitions.
If Twitter renegotiates its acquisition price or accepts a breakup, it could face more legal problems. Adding to the many shareholder lawsuits already facing the Twitter acquisition, shareholders will be suing under any circumstances. In April, financial analysts said Mr. Musk called the price a lowball offer, and Twitter shareholders could balk if the company agreed to lower its acquisition price further.
A breakdown Mr. Musk may face additional legal scrutiny. Securities and Exchange Commission revealed In May, it was Mr. Musk bought Twitter stock and scrutinized whether he properly disclosed his stake and his intentions for the social media company. In 2018, the regulator is a $40 million settlement Mr. His tweets falsely claiming he received financing from Musk and Tesla to take Tesla private amounted to securities fraud.
“At the end of the day, the merger agreement is just a piece of paper. If your buyer gets cold feet, a piece of paper can give you a case,” says Mr. said Ronald Barush, a retired mergers and acquisitions attorney who worked at Scott Arbs before representing Musk. “A lawsuit doesn’t get you a deal. It usually gives you a lasting headache. And a damaged company.