The Elon Musk-Twitter saga has now gone to court

The Elon Musk-Twitter saga has now gone to court

Now that Elon Musk has signaled his withdrawal from the $ 44 billion offer to buy Twitter, the fate of the influential social media network will be determined by an epic court battle, involving months of costly litigation and high-discussion. By elite lawyers on both sides.

The question is whether Mr. Musk will be legally bound to be allowed to stick to or withdraw from the consent-acquisition, perhaps with a 10-digit fine.

Most legal experts say Twitter has a hand in it, because Mr Musk has attached a few strings to his deal to buy the company and the company is determined to enforce the deal.

But Mr Musk sees passion and stinginess and is backed by top bankers and lawyers. Instead of a long-running public feud with the world’s richest man and his hardliners, Twitter may come under pressure to find a quick and relatively peaceful solution – one that could protect the company’s independence but leave it in a precarious financial position.

Mike Ringler, a partner at Skadden, Arps, Slate, Meagher & Flom, who represents Mr. Musk, told Twitter late Friday that his client was leaving the takeover. Mr Ringler argued in his letter that Twitter had breached the agreement with Mr Musk without providing details on how it measures unverified accounts. He further added that Mr Musk did not believe the metrics published by Twitter about how many of his users were fake.

Twitter’s board responded that it intended to complete the acquisition and would file a lawsuit against Mr. Musk in Delaware Chancery Court to compel him.

At the heart of the controversy is Mr Musk’s terms of a merger deal with Twitter in April. His deal with Twitter allows him to break his contract by paying him a $ 1 billion fee, but only in certain circumstances such as losing loan financing. The agreement would require Twitter to provide the data that Mr. Mask may need to complete the transaction.

Mr Musk has demanded that Twitter provide a detailed account of spam on his platform. Throughout June, Mr. Musk and Twitter’s lawyers have debated how much data to share to satisfy Mr. Musk’s investigations.

Mr. Musk’s cold feet about the Twitter deal coincided with a huge slide in the evaluation of technology companies, including Tesla, the electric vehicle company he runs, which is also his main source of wealth. Mr. Musk did not respond to a request for comment.

Twitter maintains that its spam statistics are accurate, but refuses to disclose publicly how it identifies and calculates spam accounts because it uses personal information, such as user phone numbers and other digital sources about their identities, to determine if an account is unverified. . A Twitter spokesman declined to comment when Twitter planned to sue to enforce the merger agreement.

“The result is: the court says the mask could go away,” said David Larker, a professor of accounting and corporate governance at Stanford University. “Another consequence is that he has been forced to go through this agreement and the court can enforce it. Or there may be some middle ground where there is a price revision. “

For Twitter, it’s important to complete a sale to Mr. Musk. It struck a deal with Mr. Musk because technology companies were enjoying optimistic appraisals; Some, such as Snap and Meta, have now declined due to the pressure of advertising, the global economic upswing and rising inflation. Twitter’s stock has fallen nearly 30 percent since the deal was announced and Mr Mask’s offer price traded well under $ 54.20 per share.

Legal experts say Mr Musk’s controversy over spam could be a ploy to force Twitter to return to bargaining in the hope of lower prices.

At the time of the deal, with no other potential buyers appearing as an alternative to Mr. Musk, his offer maximized the chances of getting Twitter.

Twitter’s Trump card is a “specific performance clause” that gives the company the right to sue Mr. Musk and force him to complete the contract or pay for it, as long as his debt financing remains intact. Forced acquisitions have occurred before: In 2001, Tyson Foods tried to withdraw from the acquisition of Meatpacker, pointing to IBP’s financial problems and accounting irregularities. The vice chancellor of a Delaware court ruled that Tyson must complete the acquisition,

But legal authority is different than the real reality. A lawsuit would probably cost millions of legal fees, take months to resolve, and add more uncertainty to already concerned staff.

Disagreements over contracts often end up being settled or re-negotiated over price. In 2020, luxury giant LVMH Moët Hennessy tried to break its $ 16 billion deal to acquire Louis Vuitton Tiffany & Company, eventually receiving a discount of about $ 420 million.

“This 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 money.”

The low price will benefit Mr Musk and his financial backers, especially as Twitter faces financial headwinds. But Twitter has made it clear that they want to force Mr Musk to stick to his 44 44 billion offer.

The most detrimental result for Twitter would be to break the deal. Mr Musk needs to show that Twitter has materially and intentionally violated the terms of his contract, a high bar that earners have rarely met. Mr Musk claimed that Twitter had withheld information needed to close the deal. He further argued that Twitter had misreported its spam statistics, and that the misleading statistics hid a serious problem with Twitter’s business.

A buyer has only once successfully argued in a Delaware court that a material change in the business of the target company gives it the power to exit the contract explicitly. This happened in 2017 with the বা 3.7 billion acquisition of the pharmaceutical company Acorn by the healthcare firm Fresenius Cabi. After signing the Fresenius contract, Acorn’s income plummeted and he was accused by a whistle-blower of skirting regulatory requirements.

Even if Twitter shows that it has not violated the consolidation agreement, a chancellor in a Delaware court can still allow Mr. Musk to pay compensation and leave, as happened in the 2008 merger of Apollo Global Management’s chemical company Huntsman and Hexion. (The lawsuits ended in a broken contract and a 1 billion settlement.)

Forcing an acquirer to buy a company is a complex process for a supervisor, and a chancellor may not want to order a buyer to do something he or she does not follow in the end, a risk that is particularly acute in this agreement, violating the legal limitations imposed by Mr. Musk. The habit of doing.

“The worst case scenario for the court is that it gives an order and he doesn’t comply, and they have to figure out what to do about it,” said Morgan Ricks, a professor at Vanderbilt Law School.

Although Mr. Musk usually relies on a small circle of confident people to run his business, including rocket maker SpaceX, he has brought in a larger legal team to oversee the Twitter acquisition. In addition to his personal lawyer, Alex Spiro, he tapped attorneys from Scaden, Arps, Slate, Cloud and Flom.

Skadden is a go-to corporate law firm with sufficient experience to sue in a Delaware court, including an attempt to stop LVMH’s acquisition of Tiffany.

On his behalf, Wilson has hired Sonsini Goodrich and Rosati and Simpson Thatcher and Bartlett’s lawyers to handle the Twitter deal. Wilson Sonsini is a longtime legal advisor to Twitter, which has built its reputation on venture capital and technology deals. Simpson Thatcher is a New York-based law firm with extensive experience in general corporate consolidation and acquisitions.

If Twitter reconsiders the price of its acquisition or accepts a breakup, it will likely face more legal issues. Shareholders will sue in both cases, with Twitter already facing acquisitions linked to several shareholder lawsuits. In April, financial analysts called Mr Musk’s price a “lobal offer” and Twitter shareholders could back down if the company agreed to further reduce its acquisition price.

A breakup could also bring Mr. Mask into additional legal investigation. The Securities and Exchange Commission revealed in May that it was examining Mr Musk’s Twitter stock buying and whether he had properly disclosed his shares and his motives for the social media company. In 2018, regulators secured a $ 40 million settlement from Mr. Musk and Tesla that his tweet falsely claimed that he had secured funds to take Tesla private which amounted to securities fraud.

“At the end of the day, an attachment deal is just a piece of paper. And a piece of paper can sue you if your buyer gets cold feet, ”said Ronald Barush, a retired consolidation and acquisition lawyer who worked for Scaden Arps before representing Mr. Musk. “A lawsuit doesn’t give you a deal. This usually gives you a prolonged headache. And a loss-making company. ”

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