Now that Elon Musk has shown his intention to move away from his $ 44 billion offer to buy Twitter, the fate of an influential social media network is epic, including months of expensive proceedings and high-stakes negotiations. Determined by a court battle by elite lawyers on both sides.
The question is whether Mr. Musk will be forced to stick to the legally agreed takeover or will be allowed to withdraw, perhaps by paying a 10-digit penalty.
Most legal experts say Twitter has the upper hand. This is because Mr. Musk added some strings to his agreement to buy the company, and the company is determined to force the deal.
However, Mr. Musk enjoys impulsivity and brinkmanship a lot and is backed by a fleet of leading bankers and lawyers. Twitter could be pressured to find a quick and relatively peaceful solution, rather than engaging in a protracted mass quarrel with the world’s wealthiest man and his army of enthusiastic followers. position.
Mike Ringler, a partner of Skadden, Arps, Slate and Meeger & Fromm on behalf of Mr. Musk, informed Twitter late Friday that his client had abandoned the acquisition. In a letter, Ringler alleged that he violated the agreement with Musk because Twitter did not provide him with detailed information on how to measure fraudulent accounts. He also said Mr. Musk did not believe in the metrics Twitter publicly disclosed about how many of its users were fake.
Twitter’s board of directors intends to complete the acquisition and has sued Mr. Musk in the Delaware Court of Justice and has stated that he will force him to do so.
At the heart of the controversy is the terms of the merger agreement that Mr. Musk signed with Twitter in April. His contract with Twitter allows him to terminate his transaction by paying a $ 1 billion fee, but only under certain circumstances, such as losing his debt financing. The deal also requires Twitter to provide Mr. Musk with the data he may need to complete his transaction.
Musk requested that Twitter provide a detailed description of the spam on its platform. Throughout June, Musk and Twitter lawyers argued over the amount of data to share to meet Musk’s inquiries.
Mr. Musk’s cold-hearted attitude towards Twitter trading was in line with a significant decline in tech companies, including his electric car company Tesla. This is also his main source of wealth. Mr. Musk did not respond to the request for comment.
Although Twitter claims that the number of spam is accurate, it uses personal information such as other digital clues about the user’s phone number and ID to determine if the account is genuine, so the spam account’s We refuse to publish detection and counting methods. A Twitter spokesman declined to comment on when Twitter was due to sue for execution of the merger agreement.
David Larker, a professor of accounting and corporate governance at Stanford University, said: “Another result is that he is forced to complete the transaction and the court can enforce this, or there may be a midpoint where there is price renegotiation.”
It is very important for Twitter to complete the sale to Mr. Musk. It signed a deal with Mr. Musk as the tech company enjoyed optimistic evaluation. Some, like Snap and Meta, are plunging due to advertising pressure, global economic upheavals and rising inflation. Twitter’s share price has fallen by about 30% since the deal was announced, well under Mr. Musk’s asking price of $ 54.20 per share.
Legal experts said Musk’s spam dispute could be a ploy to bring Twitter back to the negotiating table in hopes of securing lower prices.
In the process of the deal, his offer was the best Twitter could get, as no other potential buyer appeared as a white knight to replace Mr. Musk.
Twitter’s trump card is a “specific performance clause,” which gives the company the right to sue Mr. Musk and force him to complete or pay the transaction, as long as the debt loan he has enclosed is intact. A forced acquisition has occurred before. In 2001, Tyson Foods sought to cancel the acquisition of meat packaging company IBP, pointing out IBP’s financial problems and accounting irregularities. The Deputy Prime Minister of the Delaware State Court ruled that Tyson needs to complete the acquisition.
However, legal authority is different from the actual reality. The proceedings will probably cost millions of statutory costs, take months to resolve, and add additional uncertainty to employees who are already upset.
Transaction discrepancies often end with settlements and price renegotiations. In 2020, luxury giant LVMH Moët Hennessy Iviton sought to split a $ 16 billion transaction to acquire Tiffany, eventually securing a discount of approximately $ 420 million.
Charles Elson, a recently retired professor of corporate governance at the University of Delaware, said: “It’s all money.”
Lower prices will benefit Mr. Musk and his financial backers, especially as Twitter faces financial headwinds. But Twitter has revealed that it wants to force Mr. Musk to stick to the $ 44 billion offer.
The most detrimental result for Twitter is the collapse of transactions. Mr. Musk needs to show that Twitter has substantively and intentionally violated the terms and conditions. This is a high standard that acquirers rarely meet. Mr. Musk claimed that Twitter withheld the information he needed to close the deal. He also argued that Twitter misreported spam numbers and misleading statistics hide serious problems with Twitter’s business.
The buyer has only once claimed in a Delaware court that a material change in the subject company’s business could terminate the transaction altogether. This happened in 2017 when pharmaceutical company Akorn was acquired by healthcare company Fresenius Kabi for $ 3.7 billion. After Frezenius signed the agreement, Acorn’s earnings declined and faced whistleblower allegations circumventing regulatory requirements.
Even if Twitter showed that it did not violate the merger agreement, the Prime Minister of the Delaware Court paid damages to Mr. Musk, as in the case of the Apollo Global Management transaction that combined Chemical Huntsman and Hexion in 2008. May allow you to leave. The proceedings ended with a bankrupt transaction and a $ 1 billion settlement. )
Forcing an acquirer to buy a company is a complex process to oversee, and the prime minister may not want to order the purchaser to do what he ultimately does not obey. The habit of ignoring legal restrictions.
“The worst scenario for a court is to give an order and he doesn’t obey, and they have to understand what to do about it,” said Morgan Ricks, a professor at Vanderbilt Law School. rice field.
Mr. Musk usually relies on a small fellow circle to run his business, including rocket maker SpaceX, but he invited a larger legal team to oversee the acquisition of Twitter. .. In addition to his personal lawyer, Alex Spiro, he used Skadden, Arps, Slate, Meagher & Flom lawyers.
Skadden is a reliable corporate law firm with extensive experience discussing proceedings in front of courts in Delaware, including LVMH’s attempt to terminate the acquisition of Tiffany.
Meanwhile, Twitter has lawyers from two companies, Wilson Sonsini Goodrich & Rosati and Simpson Thatcher & Bartlett, to manage transactions. Wilson Sonsini is a longtime legal advisor to Twitter and has built a reputation for trading venture capital and technology. Simpson Thatcher is a New York-based law firm with extensive experience in mergers and acquisitions of common companies.
If Twitter renegotiates the acquisition price or accepts the dissolution, it will probably face more legal issues. Shareholders will file proceedings in either scenario, in addition to some of the shareholder proceedings Twitter has already faced regarding the acquisition. In April, financial analysts called Musk’s price low, and Twitter shareholders could shut down if the company agreed to further reduce the acquisition price.
The dissolution could also bring Mr. Musk an additional legal scrutiny.Securities and Exchange Commission clearly In May, Musk was investigating the purchase of Twitter shares and whether he properly disclosed his shares and intentions for social media companies. In 2018, regulators secured a $ 40 million settlement from Musk and Tesla on suspicion of falsely claiming that Musk and Tesla had secured funds to keep Tesla private. ..
“After all, the merger agreement is just one sheet of paper, and one sheet of paper can bring a proceeding against you if your buyer calms down,” Musk said. Ronald Balsh, a retired merger and acquisition attorney who worked for Skadden Arps before, said. “The proceedings do not give you a deal. It generally gives you a protracted headache. And the damaged company.”
