Time.news – Elon Musk will have to face an uphill road if Twitter decides to take him to court after he withdrew from the acquisition of the social network for 44 billion dollars. Tesla’s boss has decided to give up since, according to his thesis, Twitter would have violated “substantially” some provisions of the sales contract: for this reason, he would have had the right to withdraw from the ‘deal’.
Twitter responded by announcing plans to sue Musk in the Delaware Court of Chancellery, where the company is registered, to force him to honor the agreement at the agreed price of $ 54.20 per share. In short, an expensive legal battle promises to be a harbinger of new turbulence for the company.
What could happen? According to the Financial Times, there are several scenarios to consider. But one thing is certain: the times are expected to be long, as it will be necessary to enter into the details of Twitter’s activity and its work after the signing of the contract even if the parties could opt for a transaction in order to avoid an expensive and potentially embarrassing.
‘SOFT’ TWITTER
Twitter could choose to accept a deal or negotiate with Musk for a lower price, to avoid the hefty legal fees and an added dose of uncertainty amid a climate of great distrust among the company’s employees.
According to John Coffee of Columbia Law School, interviewed by the Financial Times, things would get bad for Musk as “the law is clear enough: you cannot withdraw from a deal the way he is trying to do”. Ann Lipton, a lecturer in corporate law at Tulane University thinks so too, quoted by the Financial Times, explaining: “Because his conduct so far has shown so blatantly that he was looking for any excuse to back down, he will start the lawsuit with a serious credibility problem“.
WHAT MUSK CAN DO
In these cases, to invalidate a merger agreement, buyers must argue that the company they were about to acquire experienced a “material adverse effect” (EAW) citing deterioration in its balance sheet data as evidence.
Musk claims that Twitter has violated three separate provisions of the contract. First, he said that Twitter has repeatedly failed to provide adequate information on fake and spam accounts, which is necessary to facilitate financial planning of the transaction. Second, Musk reps say they made a preliminary assessment of the data they could access and found that the number of spam and fake accounts on the platform was “vastly higher” than Twitter’s estimated 5%.
Twitter’s public statements under the agreement therefore contain “materially inaccurate statements”. Finally, Musk argued that the resignation of key employees after the signing of the agreement show that the company was not conducting its business “in an ordinary way”and this could provide him with a loophole.
Musk has been addressing the issue of fake accounts for months in interviews and in his own tweets. For his part, Twitter has always said that they were limited to 5% of total accounts and has consented to some of his requests for data. However, the company has declared that it cannot share the entire database with third parties, as it contains sensitive information on users protected by privacy laws.
THE SUSPECTS OF TWITTER
Experts say Twitter is likely to argue that Musk’s concerns simply hide buyer’s remorse for an expensive, highly leveraged transaction. Musk has received $ 13 billion in debt commitments from several Wall Street banks. The price of debt has gotten significantly more expensive in recent weeks as banks have struggled to place loans and bonds.
Musk has also pledged to raise more than $ 30 billion in equity. He previously announced he had lined up a number of co-investors, including private equity firms like Brookfield and Andreessen Horowitz. Tesla’s stock plummeted more than 35% this year, and Musk himself sold $ 8.5 billion worth of stock to help fund the deal.
THE ‘PENALTY’
The terms of the deal include a $ 1 billion termination fee that Musk would have to pay if he is found responsible for the transaction’s failure. Twitter has negotiated a so-called specific execution clause that commits Musk to enter into the deal if all other conditions are met.
However, the FT speculates that if Musk and Twitter agree on damages instead of a price revision, the merger agreement provides for a maximum ceiling of 1 billion dollars. However, the parties could simply agree on a larger figure to end the hostilities.
THE ‘CLOU’ MOMENT
Should the conflict come to a courtroom, Musk’s deposition could be the highlight and warrant more than a surprise. The Ft recalls that in 2021 the billionaire clashed dramatically with a lawyer representing Tesla shareholders who accused him of improperly bailing out SolarCity, another Musk company Tesla acquired in 2017. “I think she is a very bad human being, ”Musk told the lawyer who was questioning him. The Delaware court then cleared him of any wrongdoing.