Elon Musk could be forced by a US court to take over Twitter if it files a lawsuit even though he pulled out of the $44 billion deal on Friday. Things are about to get sloppy.
The Tesla founder told the social media company he was terminating the massive deal, which was struck in May, because he said Twitter failed to provide enough data on spam accounts. He reckons this was a breach of their agreement.
Twitter is obviously very mad and claims, no, Musk is in breach of their agreement.
Chair Bret Taylor responded to Musk with a tweet on Friday that said the company would “pursue legal action to enforce the merger agreement”.
The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.
— Bret Taylor (@btaylor) July 8, 2022
Twitter reportedly assembled a legal team to sue Musk at the weekend and legal experts are expecting a suit to be filed this week.
Can Twitter actually sue Musk and what happens if they win?
Twitter said Musk has broken the terms of the agreement both parties signed in May and Musk will either have to stick to his word and buy the company or pay a penalty for breaking the contract.
Under the terms the company can ask a judge for “specific performance” to make Musk buy Twitter for the agreed $54.20 a share price.
Alternatively they can also ask him to cough up a $1 billion break fee. Youch.
But experts reckon Musk doesn’t really have a chance here and is probably ging to have to handover a lot of money either way.
Let’s break that down.
Musk gave three reasons for backing out of the deal in his letter to Twitter on Friday. One, he said Twitter had breached the agreement first by not providing adequate information on spam accounts that Musk had asked for. Two, he said it had breached the contract when it fired a bunch of senior staff without consulting with Musk. And three, he said Twitter lied about the number of spam accounts to the US financial watchdog.
Does Musk have fair grounds to back out of the Twitter deal unscathed?
University of Richmond law professor Carl Tobias told the Guardian Musk’s letter did not “give him strong legal grounds to walk away from the deal”.
“His counsel has only made allegations and arguments for Musk’s position and judges would have to decide whether the evidence that Musk would present is persuasive enough to support ending the deal,” Tobias said.
Associate professor at Boston College law school Brian Quinn also told the Guardian information requests about spam accounts and the assertations that not fulfilling those requests was an agreement breach were “unreasonable”.
Other legal experts have noted Twitter was pretty accommodating and in fact gave Musk all the information it had about spam accounts.
How will this play out?
The US state that has jurisdiction over the deal is Delaware, so it’s pretty likley the lawsuit will take place there.
“They will likely be asking for a declaratory judgment that they are not in violation of the contract. Also they will ask for an order from the court that Musk specifically perform his obligations under the agreement,” Quinn said.
Both parties could reach a settlement however, which could actually be a good option. A lengthy court battle could be damaging for both Twitter and Tesla’s reputations and share prices.
But everyone obviously wants that sweet sweet green.
Musk doesn’t want Twitter anymore, but he doesn’t want to hand over $1 billion for nothing either.
One or even 44 billion might seem a drop in the bucket for his $237 billion fortune, but remember most of that money is tied up in assets so he would likely need to either take out a loan (yes, seriously) or sell or liquidate a bunch of shit to get the cash together.
And as for Twitter, after such a colossal saga that started back in April, unsurprisingly they want want was promised.
We’ll know more in the coming days so get the popcorn.