Policy

How Elon Musk’s Twitter feud could unfold in court

Elon Musk’s attempt to walk away from his $44 billion deal to buy Twitter is likely to result in a protracted legal battle between the billionaire and the social media platform.  Musk’s team contended in a filing Friday that Twitter had breached the agreement, which allows him to terminate the purchase. 

 But Twitter is unlikely to let the Tesla and SpaceX CEO off the hook from what it says is a binding commitment to purchase the company, and it retains the ability to ask a judge to compel Musk to complete the deal. 

 The company is expected to take the dispute to Delaware Chancery Court, a local court that handles investor disputes, as early as this week. 

 Chancery judges in Delaware, which is the corporate home for more than half the public companies in the U.S., including Twitter, hear complex business law cases without juries. 

 Twitter will most likely seek a declaratory judgment in the case, asking the judge to determine whether the company has violated the terms of the sale agreement. 

 Musk and his legal team in Friday’s filing outlined three ways they believe Twitter violated the contract, two of which concern the number of bot accounts on the platform. 

 The first, they wrote, is that Twitter failed to provide Musk with information he requested to independently determine how many fake accounts there are. 

But that could a difficult calculation for Twitter or Musk to make with precise certainty. And Brian Quinn, an associate professor at Boston College law school, said it may not even be the type of information the company is required to provide under the sale agreement.

 Musk’s second argument is that Twitter has underreported its spam account figures in public filings, which could cause a “material adverse effect” on the company’s value. Convincing a judge of that argument could allow Musk to walk away from the deal cleanly, but it has only been successfully argued once in a Delaware court.  

Musk’s final contention is that Twitter breached the agreement when it fired two senior executives after the deal was signed in a way that broke the promise the company had made to operate normally until completion of the sale. 

 For all three, the burden of proof will be on Musk to prove a violation occurred. 

 “These kind of cases that involve sophisticated parties paying the most expensive lawyers in the world to negotiate and sign these deals, when you end up in court the judge treats them like big boys and girls,” Quinn said. “You decided to buy this company … you did this deal and now you have to live up to it. That’s generally the way the courts approach this.” 

 If the judge decides that Twitter did not violate the terms of the deal, the company could ask for a “specific performance,” which per the terms of the agreement would compel Musk to complete the purchase of outstanding shares for $54.20.  

 Theoretically, Musk could still decline to follow through, teeing up an even more protracted legal process. 

 Or the two parties could agree at any point to terminate the deal and settle for damages that could total 10 figures. They could also theoretically renegotiate a lower price, but that could open the company to shareholder lawsuits, given the precipitous fall of Twitter’s stock since the deal was signed. 

 Bret Taylor, the chairman of Twitter’s board, said Friday that the company is determined to complete the deal “on the price and terms agreed upon with Mr. Musk.” 

 Twitter has reportedly tapped Wachtell, Lipton, Rosen & Katz, a firm that employs the former chief justice of Delaware’s Supreme Court, who also served as chancellor of the Chancery Court, to handle the case. 

Even though most legal experts favor Twitter in the event the case goes to court, the platform could prove to lose more in the short term. 

 “It’s the worst-case scenario for Twitter,” said Dan Ives, a managing director and senior equity research analyst focused on technology at Wedbush Securities. “Because when the circus show started in April, there was always skepticism that Musk would ultimately go through with the deal. But the fact that he ripped the Band-Aid off in this fashion, in July, it leaves Twitter blowing in the wind.” 

 Over the months or even years that it takes Twitter to fight Musk and his nearly limitless resources in court, the company will have to face a damaged brand reputation and frustrated workforce. 

 Twitter stock fell 11 percent Monday to just above $32 a share, down roughly $20 from the day the company accepted Musk’s acquisition offer. 

 How relatively newly appointed CEO Parag Agrawal charts the next few months, starting with the company’s earnings report later this month, looks to be crucial for Twitter’s future. 

 “Twitter facing the richest person in the world in courts in Delaware is not where they envisioned this when the bid came in in April,” Ives told The Hill. “It’s caused a pure fiasco at Twitter.”

Tags Elon Musk Twitter

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