Could Elon Musk Really Walk Away From $44bn Twitter Acquisition? | Mergers and acquisitions

Elon Musk announced to Twitter On Friday he walked away from an agreed $44bn (£36.6bn) takeover. The move sets the stage for a legal battle between the world’s richest man and the social media platform. Here we explain what happens next and whether Kasthuri has a chance to succeed.

Why does musk go away??

Musk’s lawsuit centers on his belief that the number of spam bot accounts on Twitter’s site is far greater than the company’s claim that they account for less than 5% of its daily active users.

A letter from Musk’s lawyers, whose shares in his electric car business Tesla will help fund the deal, argues that understating the number of spam accounts on the platform — something Twitter denies — “has a negative impact on the company.” ”, which means something is seriously wrong with the business and a share is worth nowhere near the agreed-upon $54.20.

That’s how strong Musk’s case is?

The Affiliate Agreement There’s a clause (6.4) that says Twitter must provide Musk with all data and information the multibillionaire requests “for any reasonable business purpose related to the completion of the transaction.” It’s an agreement in the contract — a promise to act a certain way during the sales process — and breaking it would allow Musk to leave without permission.

But legal experts have questioned whether Twitter’s failure to provide more than what it has already shared regarding its bot count would violate the agreement. The Agreement uses the word “reasonable” when setting out which information requests are acceptable.

“The contract doesn’t give him the right to get any information, for any reason,” said Brian Quinn, an associate professor at Boston College Law School. He cannot use unreasonable requests for information to create a pretext and claim infringement.”

Quinn describes the material adverse effect clause as “essentially a non-starter.” “His letter basically agrees: it says they still count [the alleged spam problem] outside. It is not robust and will fail.

Does Musk have any other legal arguments??

His lawyers said Twitter broke the merger deal by failing to get Musk’s approval when it fired two executives and laid off a third of its talent acquisition team (or HR department). This may seem like a narrow basis for terminating an agreement, but the agreement states (Section 6.1) that Musk must be told when Twitter deviates from its obligation to conduct its business in the ordinary course and substantially protect its material assets. Current Business System.”

Quinn believes this argument has some weight and the court will see it. But, he added, “My guess is that the court will decide that these shootings are not like normal business.”

Alternatively, Musk could try going down the financing route. Specific Performance Clause (9.9) provides that the debt financing is “financed or will be financed at closing” for a substantial portion of the contract. However, Banks’ $13bn funding pledge is also subject to a legal covenant, so expect Twitter to consider its legal options if Musk’s Banks tries to pull out.

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what Twitter isOptions of?

Twitter’s president, Brett Taylor, said on Friday the company would “continue legal action to enforce the merger agreement.” If he does, the case will be tried in the US state of Delaware, which has jurisdiction over this Agreement.

Twitter Board, Mr. It is committed to completing the transaction on the price and terms agreed with Musk and plans to pursue legal proceedings to enforce the merger agreement. We believe we will prevail in the Delaware Court of Chancery.

— Brett Taylor (@btaylor) July 8, 2022

Quinn said he expects Twitter to file a declaratory judgment ruling that Twitter did not breach the contract and that Musk cannot walk away.

Experts expect Musk to get an order from the court specifically requiring Twitter to fulfill its obligations under the deal — in other words, he’s buying the company. This is called “specific efficiency”.

John Coffey, a law professor at Columbia University, said: “They will sue in Delaware’s Chancery Court for specific performance. That means asking for an order forcing Musk and his affiliates to complete the deal at the original price.

The company also has the option to buy Musk a $1bn break fee as part of the deal, instead of forcing him to do so.

Is the solution possible?

If Twitter wins its case, it could force the world’s richest man to buy a business he doesn’t want.

“Most disputes like this usually end with settlements that allow plaintiffs and defendants to save face,” says Carl Tobias, Williams’ law chair at the University of Richmond.

Both sides agree to a lower price if Musk finds he still wants to own Twitter and is concerned about overpaying. However, Twitter’s institutional shareholders may push back against it.

“I doubt the court will rule before there is a settlement, and Twitter’s daily price will give you some idea of ​​what Musk’s side will pay,” Coffey said. Twitter’s shares are currently trading at less than $37, valuing the company at $28bn.

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