Elon Musk and Twitter saga now heading to courts

Now that Elon Musk has declared his intention withdraw his offer to buy Twitter for $44 billionthe fate of the influential social network will be determined by what could become an epic legal battle involving months of costly litigation and high-stakes negotiations involving elite lawyers from both sides.

The question is whether Mr. Musk will be legally forced to stick to his agreed-upon acquisition or will he be allowed to opt out, possibly paying a 10-figure fine.

Most legal experts say Twitter has the upper hand, in part because Mr. Musk has attached several terms to his agreement to buy the company, and the company is determined to go through with the deal.

But Mr. Musk revels in impulsiveness and brinkmanship, and is backed by a group of top bankers and lawyers. Instead of engaging in a protracted public brawl with the world’s richest man and his legions of loyal followers, Twitter may be under pressure to find a quick and relatively amicable solution that could keep the company independent but leave it in a precarious financial position. job title.

Mike Ringler, a partner at Skadden, Arps, Slate, Meagher & Flom, representing Mr. Musk, tweeted late Friday that his client was pulling out of the takeover. mr. Ringler argued in his letter that Twitter violated an agreement with Mr. Musk by not providing him with details on how it measures invalid accounts. He also said Mr. Musk didn’t believe the numbers Twitter publicly released about how many of its users were fake.

In response, Twitter’s board said it intended to complete the acquisition and would sue Mr. Q. Musk in the Delaware Court of Chancery to force him to do so.

At the heart of the dispute are the terms of a merger agreement that Mr. Musk contacted Twitter in April. His Twitter contract allows him to break the deal by paying a $1 billion fee, but only under certain circumstances, such as a loss of debt financing. The agreement also requires Twitter to provide data that Mr. Musk may demand completion of the deal.

mr. Musk demanded that Twitter provide a detailed spam report on its platform. During June, the lawyers of Mr. Musk and Twitter are arguing over how much data needs to be provided to satisfy Mr Trump. mask requests.

mr. Musk’s cold attitude towards the Twitter deal coincided with a sharp drop in the value of technology companies, including Tesla, the electric car company he runs and is also his main source of wealth. mr. Musk did not respond to a request for comment.

Twitter claims its spam data is accurate but refuses to publicly detail how it detects and counts spam accounts because it uses personal information such as users’ phone numbers and other digital clues about their identity to determine if they are whether the account is invalid. A spokesperson for Twitter declined to comment when Twitter planned to take legal action to enforce the merger agreement.

“The results are this: the court says Musk can go,” said David Larker, a professor of accounting and corporate governance at Stanford University. “Another outcome is that he is forced to complete the deal, and the court can achieve this. Or maybe there is some middle ground where there is a revision of the price.”

For Twitter, the completion of the sale of Mr. Muscle is vital. She made a deal with Mr. Musk as tech companies enjoyed bullish valuations; some, like Snap and Meta, are now plummeting as they face advertising pressure, global economic turmoil and rising inflation. Twitter shares have fallen about 30 percent since the deal was announced and are trading well below Mr. Black’s index. Musk’s offering price is $54.20 per share.

Mr. Musk’s spam dispute may be a ploy to force Twitter back to the negotiating table in hopes of getting a lower price, said Mr.

At the time of the deal, no other potential buyer emerged as an alternative to Mr. White Knight. Musk by making his offer the best that Twitter could get.

Twitter’s trump card is “special feature clause“This gives the company the right to sue Mr. Musk and force him to complete or pay for the deal as long as the debt financing he has driven into remains intact. Forced acquisitions have happened before: in 2001, Tyson Foods attempted to back out of acquiring IBP’s meatpacking plant, citing IBP’s financial problems and accounting irregularities. Vice Chancellor of the Delaware Court ruled that Tyson had to complete the acquisition,

But legal authority differs from practical reality. The lawsuit is likely to cost millions in legal fees and take months to resolve, adding even more uncertainty to the already existing situation. nervous employees.

Disagreements over deals often ended in settlements or price revisions. In 2020, luxury goods giant LVMH meets Hennessy Louis Vuitton. tried to wreck his $16 billion deal acquire Tiffany & Company, ultimately securing a rebate of approximately $420 million.

“This stuff is a bargaining chip in an economic deal,” said Charles Elson, a recently retired professor of corporate governance at the University of Delaware. “It’s all about the money.”

A lower price would benefit Mr. Musk and his financial backers, especially now that Twitter is in financial trouble. But Twitter has made it clear it wants to force Mr. Musk to stick to its $44 billion offer.

The most devastating outcome for Twitter will be the collapse of the deal. mr. Musk will need to be shown that Twitter deliberately and materially violated the terms of its contract, a high bar that buyers have rarely met. mr. Musk said Twitter was hiding information it needed to close the deal. He also claimed that Twitter misreported the amount of spam and misleading statistics masked a serious problem in Twitter’s business.

The buyer has only once successfully argued in a Delaware court that a significant change in the target company’s business gives it the opportunity to exit the deal unconditionally. It came about in 2017 with the $3.7 billion acquisition of pharmaceutical company Akorn by medical company Fresenius Kabi. After Fresenius signed the agreement, Akorn’s revenue dropped and the whistleblower accused the company of non-compliance.

Even if Twitter shows that it has not violated the merger agreement, a chancellor in a Delaware court can still allow Mr. Musk to pay damages and leave, as was the case with Apollo Global Management, which merged chemical companies Huntsman and Hexion in 2008. settlement agreement for $1 billion.)

Forcing a buyer to buy a company is a difficult process to oversee, and the chancellor may not want to order the buyer to do something it ultimately won’t do—a risk that’s particularly high in this deal, given Mr. K. Musk the habit of breaking the law.

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

While Mr. Musk typically relies on a small circle of trusted individuals to run his business, including rocket maker SpaceX. He brought in a large legal team to oversee the Twitter acquisition. In addition to his personal attorney, Alex Spiro, he has hired attorneys from Skadden, Arps, Slate, Meagher & Flom.

Skadden is an in-house law firm with extensive experience in Delaware court cases, including LVMH’s attempt to break up the Tiffany acquisition.

For its part, Twitter brought in lawyers from two firms, Wilson Sonsini Goodrich & Rosati and Simpson Thacher & Bartlett, to manage the deal. Wilson Sonsini is a longtime Twitter legal advisor who built his reputation on venture capital and technology deals. Simpson Thacher is a New York-based law firm with extensive experience in general corporate mergers and acquisitions.

If Twitter renegotiates the acquisition price or decides to break up, it is likely to face new legal challenges. Shareholders will sue under either scenario, adding to the several shareholder lawsuits Twitter has already faced in connection with the acquisition. In April, financial analysts called Mr. Musk is offering a low price, and Twitter shareholders may opt out if the company agrees to lower the acquisition price even further.

The breakup could also lead to additional legal checks on Mr. Musk. Securities and Exchange Commission disclosed in May that he reviewed Mr. Musk’s purchase of Twitter shares and whether he correctly disclosed his stake and his intentions for the social media company. In 2018, the regulator provided $40 million from Mr. Musk and Tesla are accused that his tweet, falsely claiming that he received funding for Tesla’s privatization, amounts to securities fraud.

“At the end of the day, a merger agreement is just a piece of paper. And a piece of paper can get you sued if your buyer goes nuts,” said Ronald Barusch, a former mergers and acquisitions lawyer who worked for Skadden Arps before she represented Mr. Arps. Musk. “Litigation doesn’t give you a deal. It usually causes a long lasting headache. And a bad company.”