Billionaire Elon Musk on Friday pulled out of a $44 billion deal to buy Twitterciting continued disagreements over the number of spam accounts on the platform.
While Musk may want to end his bid for Twitter, it’s not as easy as walking away, according to legal experts, according to legal experts. Instead, Musk will likely face a long battle ahead with Twitter in court that could take months to resolve.
Ann Lipton, a professor of corporate governance at Tulane Law School, said Twitter’s board is in a very difficult position. “They can’t just say, ‘Okay, let us ease the pain, Elon we’ll let you lower the price to $20 per share, or we’ll settle, we’ll agree to drop the price. go if you just pay the billion dollar break fee. I mean, Twitter isn’t in a position to do that.”
Doing so, she added, would risk a lawsuit by Twitter shareholders. Twitter shareholders submitted a lawsuit against the company and Elon Musk himself over the chaotic settlement.
Lipton said the merger deals were “very difficult to get out of,” and Musk appears to have provided insufficient evidence to support his claim that Twitter lied about spam metrics so far. mine.
Meanwhile, Twitter’s president, Bret Taylor, has promised that the company’s board will take legal action against Musk.
“The Twitter Board is committed to closing the transaction on the price and terms agreed with Mr. Musk and plans to pursue legal action to enforce the merger agreement,” Taylor wrote in a tweet.
“We are confident we will prevail in Delaware Premier Court,” Taylor added, referring to a Delaware court that resolves business disputes.
Musk signed a legally binding agreement in April to buy Twitter at $54.20 a share. The agreement states that if either party breaks the agreement, they will have to pay a $1 billion breakup fee.
Not long after the deal was reached, Musk began hinting that he was having second thoughts about the deal. In May, Musk said that he decided to pause its Twitter acquisition as he evaluated the company’s claims that about 5% of monetized daily active users (mDAUs) are spam accounts. Twitter says it has continued to share information with Musk, including flip its “firehose”, Daily tweets flow through the platform.
In a letter on Friday, Musk’s lawyers accused Twitter of “serious violations of multiple provisions” of the agreement and claimed that the company had made “false and misleading statements.” ” about the prevalence of fake accounts on its platform.
“There are many reasons to doubt that it [Twitter] Lipton said in an interview.
Lipton said that for a “serious breach” of the agreement, Musk would have to prove that Twitter made false statements so serious that it could have a lasting impact on the company’s earnings potential. company.
“He has yet to give evidence that that is the case,” she added.
Lipton said Twitter seemed to have the upper hand when the movie deal went to court. The merger agreement includes a “performance-specific clause,” which says that Twitter has the power to sue Musk to force him to do the deal, as long as he’s still in debt.
In the coming days, Twitter is likely to file a lawsuit in Delaware and ask a judge to rule on whether it violated the terms of the agreement, then order Musk to “perform his obligations.” contract and complete the merger,” said Brian Quinn, a professor at Boston College Law School.
Quinn later said he hopes both sides will continue to make their arguments in court, as part of a litigation process that could take a year to wrap up. “For litigation, it’s fast,” he added.
Adam Sterling, executive director of the Berkeley Center for Law and Business told CNBC that Twitter has a strong case law while Musk’s has less.
“He (Musk) makes a number of legal arguments – I think it all matters,” Sterling said, pointing to Musk’s filing Friday. “(He’s) first focused on bots on the platform but also the performance of the company, so he takes all of these arguments out there.”
Musk and Twitter could also reach an agreement.
Lipton said Twitter could agree to a small change in the deal price of $54.20 per share to avoid litigation. That may not please Twitter shareholders who liked the first offer. The purchase price is equivalent to 38% of the company’s closing stock price of $39.31 on April 1, 2022, the last trading day before Mr. Musk revealed his roughly 9% stake in the company. . Shares of Twitter closed at $30.04 on Friday.
Lipton said it’s not yet clear what issue Musk will deal with.
“I didn’t know that Musk just wanted a dollar or two off the price per share,” she said. “I think Musk wants no deal or pretty dramatic pricing. So I don’t think the parties can sort it out right now.”
Sterling said that the Delaware Chancery court “is designed to deal with issues like this, it can get Musk to comply with the agreement but it can get complicated in the process.” Twitter seems to have a very strong legal argument but we’ve never seen precedent of this scale or an opponent like Elon Musk so there’s a lot of question about what he’s going to do. “
CNBC technology reporter Jennifer Elias contributed to this report.
