Elon Musk terminates the purchase agreement of Twitter, which will lead to a legal battle with the company.
Elon Musk claims he’s “terminating” his deal to buy Twitter. But “terminating” a $44 billion corporate merger isn’t as simple as saying “Hasta la vista” and shooting a gun at it. Musk, the CEO of Tesla, terminated his deal on Friday, saying Twitter failed to provide information about fake accounts on the platform. So Twitter, for its part, is on the verge of waging a legal war and, somewhat strangely, trying to get Musk to complete the purchase of the company whether he wants to or not.
Although Twitter's existing legal team includes Simpson Thacher & Bartlett LLP and Wilson Sonsini Goodrich & Rosati , the company has hired U.S. law firm Wachtell, Lipton, Rosen & Katz LLP as it prepares to sue Elon Musk later this week and force him to complete its $44 billion acquisition of the social media company
Wachtell, Lipton, Rosen & Katz was one of Musk’s legal advisors on his plan to take Tesla in 2018. Musk tweeted that “financing has been secured” for a $72 billion deal to take Tesla private, but he did not make an offer. Ultimately, Musk and Tesla each paid $20 million in civil penalties, and Musk stepped down as Tesla chairman to resolve allegations by the U.S. Securities and Exchange Commission that he defrauded investors.
But can courts really force this transaction to be completed when one party wants to exit? And is that really the outcome that Twitter wants?
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That seems to be what Twitter is signaling it wants, at least for now. Salesforce CEO Bret Taylor, apparently tweeting on behalf of Twitter's board of directors, of which he is a member, claims that board members are definitely in the process of "closing the transaction at the price and terms agreed to with Mr. Musk" and that Twitter "plans to pursue legal action to enforce the merger agreement."
“We are confident we will prevail in the Delaware Court of Chancery,” Taylor added, referring to a state court where disputes such as bankruptcy are settled by an official with the title “chancellor” instead of “judge.” The “Delaware” part is because Twitter is incorporated in the state of Delaware, rather than California where it is headquartered.
To summarize then: Twitter shareholders are dragging Musk into a dark (for most people) court in Delaware hoping that a clerk will force him to buy Twitter from them at the astonishingly generous price of $44 billion. As of the time this article was written, Twitter's market capitalization was closer to $28 billion, so you can see why Musk might not want that.
But according to Ronald Gilson, a professor of law and business at Columbia University, that's far from the only possible outcome. "One solution is for Musk to pay Twitter an amount that reflects the loss from Musk not completing the purchase," Gilson told Mashable. "The fight is ultimately about money," he pointed out.
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Thus, the legal process can, as it appears, not end in a trial, but in a dispute over Musk's actions that deprived Twitter shareholders of a monetary amount that has not yet been determined, along with exactly what that amount is and whether he is legally obligated to pay it or not. «There are many questions embedded in how the experts will calculate this amount, but the Chancery Court has many ways to make the two sides negotiate in order to avoid a trial», said Gilson.
Finding a compromise between the two parties to avoid a trial would be a relatively desirable outcome. However, Gilson continued, “I understand that the acquisition agreement was drafted to seriously limit Musk’s ability to do exactly what he is doing now».”.
Indeed, the actual text of the agreement includes a reference to a legal concept known as «specific performance», an alternative to awarding damages in a dispute, which, under the appropriate conditions, would require the completion of the transaction. Matt Levine, a legal columnist at Bloomberg, wrote on Saturday: «I like Twitter’s odds – the odds of it achieving specific performance and getting Musk to close the deal – in court, but I don’t think anything is certain at this point».
«on hold» in May, because he claimed that Twitter had deceived him – and’ by extension the world – regarding the number of bots on their service. Many commentators took this as a transparent tactic of stagnation, but it is also a fairly serious claim that could be interpreted as fraud. In June, Twitter provided Musk with data to allay his fears about spam messages.
If we accept Musk's words, the Twitter data avalanche has not at all eased his fears. In fact, he is apparently more confident than ever that they knowingly provide a service that has been flooded with unwanted messages. The letter written by Musk's lawyers to Twitter attempting to terminate the agreement states that Musk made an effort to find an exact number of «active daily users with revenue‑generating capability» or «mDAU», as opposed to spambots, and is not pleased with what he found.
«Even though this analysis remains ongoing, all indications suggest that several of Twitter's public disclosures regarding its mDAU are either false or substantially misleading», the letter states. Now the claim about spambots in the letter appears to be the main pillar of the legal argument that Musk's lawyers will present in this aforementioned Delaware court.
If this doesn't work and both sides don't compromise, it appears that Musk could actually become the new owner of a social media site about birds that he no longer wants.
Source: mashable.com
