Elon Musk faces long legal war with Twitter as he walks away from deal

Billionaire Elon Musk backed out of his $44 billion deal to buy Twitter on Friday, citing continuing disagreements over the number of spam accounts on the platform.

Although Musk wants to end his offer on Twitter, it’s not as simple as walking away, according to legal experts. Instead, Musk is likely facing a protracted battle with Twitter in court that could take several months to resolve.

Twitter’s board is in a very difficult position, said Ann Lipton, professor of corporate governance at Tulane Law School. “They can’t just say, ‘Okay, let’s save ourselves the trouble, Elon, we’ll let you drop the price $20 a share, or we’ll settle, we’ll agree to leave if you only pay the billions of termination fee dollars. I mean, Twitter just isn’t in a position to be able to do that.

This would risk triggering legal action by Twitter shareholders, she added. Twitter shareholders have already filed a lawsuit against the company and Elon Musk himself for this chaotic deal.

Merger deals are “very difficult to pull off,” and so far Musk appears to have provided insufficient evidence to support his claims that Twitter lied about its spam numbers, Lipton said.

Meanwhile, Twitter Chairman Bret Taylor has already promised that the company’s board will take legal action against Musk.

“Twitter’s board of directors is committed to completing the transaction at the price and terms agreed to with Mr. Musk and plans to pursue legal action to enforce the merger agreement,” Taylor wrote in a statement. tweet.

“We are confident that we will prevail in the Delaware Court of Chancery,” Taylor added, referring to a Delaware court that resolves disputes between businesses.

Musk signed a legally binding agreement in April to buy Twitter for $54.20 per share. The agreement states that if either party broke the deal, they would be required to pay a $1 billion breach fee.

Shortly after the deal was struck, Musk began to hint that he had doubts about the deal. In May, Musk said he had decided to put his acquisition of Twitter on hold as he assessed the company’s claims that around 5% of its monetizable daily active users (mDAUs) are spam accounts. Twitter said it continues to share information with Musk, including flipping his “firehose,” the daily stream of tweets that pass through the platform.

In a letter on Friday, Musk’s attorneys accused Twitter of a “material breach of several provisions” of the agreement and claimed the company had made “false and misleading statements” about the prevalence of fake accounts on its platform.

“There are many reasons to doubt that he [Twitter] makes such false claims, but assuming that’s the case, that’s actually no reason to cancel a merger deal,” Lipton said in an interview.

For there to be a “material breach” of the agreement, Musk would have to prove that Twitter made such egregious misrepresentations that they would have a long-term impact on the company’s earnings potential, Lipton said. .

“He has not yet proven that this is the case,” she added.

Twitter appears to have the upper hand as the deal drama heads to court, Lipton said. The merger agreement includes a “specific performance clause,” which states that Twitter has the right to sue Musk to force him into the deal, as long as he still has the debt financing in place.

In the coming days, Twitter will likely file a lawsuit in Delaware and ask the judge to decide whether it violated the terms of the agreement, then order Musk to “perform his obligations under the contract and complete the merger,” said Brian Quinn, a professor at Boston College Law School.

After that, Quinn said he expects both sides to continue making their case in court, in a legal process that could take a year. “For disputes, it’s fast,” he added.

Musk and Twitter could also reach an agreement.

Twitter may agree to a minor transaction price change of $54.20 per share to avoid litigation, Lipton said. That may not sit well with Twitter shareholders who liked the first offer. The purchase price represents a 38% premium to the company’s closing price of $39.31 on April 1, 2022, which was the last trading day before Mr. Musk disclosed his stake of approximately 9 % in the society. Shares of Twitter closed at $30.04 on Friday.

It’s unclear what Musk would agree to, Lipton said.

“I don’t know if Musk just wants to knock a dollar or two off the price per share,” she said. “I think Musk doesn’t want to have the deal or a fairly dramatic upgrade. So I don’t think the parties are close to an agreement at this time.”

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