Elon Musk arrives for the Met Gala In America: An Anthology of Fashion at the Metropolitan Museum of Art in New York, NY on May 2, 2022.
Andrew Kelly | Reuters
In the final twist of the Elon Musk and Twitter saga, the richest man in the world reported to the company’s social network he is not going to buy it anymore. Twitter Chairman Bret Taylor immediately shot back that the company intends to go to court to get the $44 billion deal closed at the agreed price and terms.
It’s hard to predict how the drama will end up, especially with a fickle merchant involved. But here are eight possible scenarios.
In theory, this could be the cleanest option for anyone – no litigation, Musk agrees to pay a $1 billion contract termination fee, and Twitter keeps going, albeit at a valuation well below $44 billion. This is the way of Twitter co-founder Ev Williams seemed to be back when he tweeted that he would be asking “can we just let this whole ugly episode disappear” if he was still on the board.
The problem is that the board of directors could be violating their fiduciary duties if they let Musk go, and Taylor’s response suggests that Twitter has no intention of doing so.
Twitter also has a strong legal argument that Musk closed in on buying the company at $54.20 a share. Allowing him to leave, paying only the divorce fee, will likely send Twitter stock further down. They already traded at a significant discount as investors wonder if the deal will go through and when. On Friday, the stock closed at $36.81.
“They can’t just say, ‘OK, let’s get the pain out of us, Elon, we’ll let you cut the price by $20 a share, or we’ll agree, we’ll agree to leave if you just pay.’ billion dollar break fee,” Ann Lipton said, professor of corporate governance at Tulane Law School. “Twitter just can’t do it.”
There is no precedent for a judge upholding a so-called “specific performance” clause to enforce a contract in a $44 billion deal. But there are examples when judges force buyers to make deals even when they do not want to.
In 2001, the Delaware Court of Chancery ruled that Tyson Foods must buy IBP Inc., then the largest U.S. beef distributor, at a previously set price. agreed price $30 per share. Tyson tried to get out of the deal after both companies’ financials declined after the deal was signed, much like Musk is trying to get out of Twitter. The judge decided that Tyson could not simply walk away due to the buyer’s remorse, and the company was forced to purchase IBP at the originally agreed price, which was estimated by IBP at $3.2 billion. To this day, Tyson owns the UPS.
Tyson Foods Inc. sign at Tyson headquarters in Springdale, Arkansas.
April L. Brown | AP
Enforcement of the deal may be the best-case scenario for Twitter investors, but could leave Twitter and its employees in an unsustainable future. If Musk really doesn’t want to own Twitter anymore, forcing him to do so could lead to another sale, new management changes, and a vortex of insecurity that could linger for years.
As Vanderbilt Law Professor Morgan Ricks tweetedperhaps the judge would prefer Musk to make amends rather than secure ownership, especially given a track record of violating state rules and regulations. The judge may be concerned that if Musk doesn’t want to buy Twitter, he could make the transfer of ownership so difficult that the collateral damage would be huge.
If so, a judge could order Musk to pay Twitter billions of dollars in damages instead of taking ownership. The amount of damages will depend on the court.
In that case, Musk will likely pay his $1 billion gap fee and billions more brokered by Twitter. The settlement should probably be enough for Twitter’s board to prove to investors that it made the right fiduciary decision to get the settled money instead of going to court.
If Musk proves that Twitter provided him with false information, and that the truthful details have a significant negative impact on the company, he can leave without paying a breakup fee. In his filing a statement as to why he is terminating the deal, Musk claims that Twitter failed to honor its contractual obligations after signing the merger agreement.
Musk’s main argument is that Twitter has not provided enough detail or evidence to show that its spam accounts make up 5% or less of all accounts, as the company claims.
“All indications are that several of Twitter’s public disclosures regarding its mDAU [monetizable daily active users] are either false or materially misleading,” Musk and his lawyers wrote in the application.
Sheldon Cooper/SOPA Images | Light rocket | Getty Images
Musk’s motivation for trying to complete the deal could be tactical negotiations to force Twitter to lower the acquisition price. The market, especially the shares of some media and technology companies, have dropped significantly since April 25. the day Musk agreed to buy Twitter. Social media partner Click decreased by 50% during this period.
Perhaps Musk and Twitter could negotiate a lower price – probably with a very painful break fee to ensure he doesn’t try to renegotiate negotiations again – to adjust for a market correction.
Perhaps the most unlikely option of all, it is entirely possible that another company could buy Twitter for less than $54.20 per share. Twitter’s board may argue that the deal provides more certainty than going to court with Musk.
However, the scenario of another buyer acquiring Twitter seems more likely after litigation if Twitter loses or settles. Musk would then be out of the picture, but Twitter would explore its options to either take the full $44 billion or further losses.
There are no known buyers interested in buying Twitter.
WATCH: Elon Musk terminates Twitter deal and claims material breach of rules