Now that
Twitter Chairman Bret Taylor
If the judge rules against Musk, he could be forced to pay Twitter shareholders $54.20 a share, as he said he would in the accord announced April 25. A ruling in his favor would let Musk walk, though he’d probably have to pay a break-up fee, initially set at $1 billion. There’s also the prospect that both sides reach a settlement whereby Musk still makes the acquisition, potentially at a lower price. Twitter shares slid 6.4% to $34.45 as the market opened on Monday in New York.
The judge in this case will zero in closely on the densely worded intricacies of the 73-page purchase agreement, and the court has rarely sided with parties who, like Musk, are attempting to bail on acquisition commitments.
Musk’s rationale centers on automated user accounts known as bots and how Twitter accounts for them. He alleges that the social media platform is teeming with spam bots, disputing Twitter’s contention that they make up less than 5% of total users. Musk said in his Friday filing with the US Securities and Exchange Commission that Twitter’s failure to properly hand over specifics on the number of bots amounts to what’s known as a “company material adverse effect [MAE]” A judge must decide whether such an event has occurred and whether it justifies Musk’s cancellation.
So far, Delaware courts have found only one case in which a clear MAE emerged -- Fresenius SE’s $4.3 billion buyout bid in 2018 for rival drugmaker Akorn Inc. A judge blessed Fresenius’ decision to walk away from the deal after finding Akorn executives hid an array of problems that cast doubt on the validity of data backing up approval for some drugs and profitability of its operations.
Forcing Musk’s Hand
The agreement also gives Twitter officials so-called specific-performance rights, which means that if the judge finds Musk’s complaints about the bots data don’t rise to the level of an MAE, the platform can demand that the judge force Musk to consummate the buyout.
Musk’s decision to sign the deal without doing due diligence could work against him, said
Musk is, at least publicly, laughing off the lawsuit in his
The billionaire may be taking a dismissive approach but Delaware chancery court judges are known for their expertise in interpreting what may look and sound to the layperson as a maze of legal jargon that seeks to delineate both sides’ rights and responsibilities in a merger and acquisition accord.
In the Twitter deal, the platform’s executives are obligated to promptly furnish Musk with “all information concerning the business, properties and personnel of the company and its subsidiaries as may reasonably be requested.” Musk contends management hasn’t met those duties in connection with the details of spam and bot accounts.
Twitter said it has handed over extensive data on its user base. Executives told
The agreement also defines a “company material adverse effect,” as “any change, event, effect or circumstance which, individually or in the aggregate, has resulted in or would reasonably be expected to result in a material adverse effect on the business, financial condition or results of operations of the company and its subsidiaries.”
A probable outcome is that the parties reach an out-of-court settlement. Musk’s effort to pull the plug on the deal is probably nothing more than a negotiating ploy, said
“This is not a material adverse change,” Elson said. “That’s just a negotiating position. He knows the Delaware courts are extremely reluctant to find something like that in these deals.”
To press its case, Twitter has
Musk has brought in
Twitter Morale Sinks
Whatever the outcome of legal wrangling, the mood among many employees of San Francisco-based Twitter is dour, people at or close to the company have told Bloomberg. Amid the uncertainty surrounding a possible sale, several employees have lamented what they consider a lack of leadership and vision-setting from the top, including Chief Executive Officer
For many Twitter staffers, neither of the likely outcomes is
Several people have left or are planning to leave because they simply don’t want to work for Musk, the people said. For some, the decision to depart was cemented after a June question-and-answer session during which Musk, who showed up late, told employees that only those who were “exceptional” would be allowed to continue working from home.
(Updates with Musk meme and opening shares.)
--With assistance from
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Tom Giles, Kevin Miller
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