Legal Experts Say Elon Musk May Have To Cough Up $44B For Twitter Anyway
By Kristin Myers on July 10, 2022 at 3:30 PM EDT
Updated on July 11, 2022 at 5:22 AM EDT
It seems that Elon Musk may be forced to buy Twitter, even if he wants to back out of the deal.
According to a new SEC filing, the Tesla CEO wants to back out of his $44 billion dollar deal to buy Twitter after not being satisfied with the information that was given to him regarding bot and spam accounts on the social media site.
However, Twitter board chair Bret Taylor announced shortly after the news broke that Twitter intends to pursue legal action to force Musk to buy the company… and one legal expert says it looks like that might happen.
Legal Expert Says Elon Musk Might Be Forced To Buy Twitter Now Anyway
On Friday, Bret Taylor tweeted, “The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.”
One legal expert told The Guardian that Twitter wants to file a lawsuit in Delaware as soon as Monday to get the legal process started as soon as possible. The lawsuit will be filed in Delaware since it’s the state that has jurisdiction over the deal.
Brian Quinn, an associate professor at Boston College law school, told the publication that Twitter “will likely be asking for a declaratory judgment that they are not in violation of the contract. Also, they will ask for an order from the court that Musk specifically perform his obligations under the agreement.”
Under the terms of their agreement, Twitter will be able to ask a judge for a “specific performance,” which will force the SpaceX founder to buy the company for $54.20 per share, which is the price that they had agreed to back in April. The company can also request a $1 billion dollar “break-up fee,” which is specifically outlined in their agreement. Musk can also take home a $1 billion dollar fee if Twitter is found to be in breach of the agreement.
Legal Experts Question Whether Musk’s Arguments Will Hold Up In Court
In Friday’s letter to the Twitter board, Elon Musk said that there were three reasons why he was terminating the deal. He claimed that Twitter had breached their agreement by failing to provide information about the bot or spam accounts that he was requesting. He also alleges that Twitter misled the public by misrepresenting the number of spam accounts on the site. He also claims that they breached the agreement when they laid off a number of key executives last month. Musk claims that they needed to consult with him first before firing anyone.
Brian Quinn said that Musk’s requests were “unreasonable” because he decided to sign his name to the deal without having that information ahead of time. Quinn said, “He can’t use unreasonable information requests to create a pretext to claim a violation.”
Another Professor of Law at Columbia University, John Coffee, agreed. He stated that “Musk is on very weak legal grounds. Twitter appears to have given him access to just about everything to satisfy his desire to know the percentage of bots among its users.”
He’s not alone. The Guardian also asked Carl Tobias, Williams chair in law at the University of Richmond, for his take. He said, “Musk’s filing does not appear to give him strong legal grounds to walk away from the deal. His counsel has only made allegations and arguments for Musk’s position and judges would have to decide whether the evidence that Musk would present is persuasive enough to support ending the deal.”
That being said, Tobias feels that it is likely that the two sides will agree to a settlement out of court, rather than forcing Musk to buy a company that he does not want. The Guardian noted that other analysts have predicted that forcing Musk to go through with the deal could hurt Twitter’s share price in the long term.
“Most similar disputes usually conclude with settlements that permit plaintiffs and defendants to save face,” Tobias said.
Other financial analysts speculated that Elon Musk is trying to use the legal battle to get a lower price for the company. Twitter is currently trading at $36.81 per share, far below the $54.20 per share that Musk agreed to buy it for.
Coffee added, “I doubt that the court will get to rule before there is a settlement, and the day-to-day price of Twitter will give you some idea of what Musk’s side will hope to pay.”
In the meantime, Twitters users’ reactions to Musk backing out of the deal can be read here.
