Talking point

Will Twitter succeed in suing Elon Musk?

Social media platform accuses billionaire of backing out of buyout deal due to fall in his personal wealth

Twitter is suing Elon Musk in a bid to force the billionaire to complete his $44bn acquisition of the social media company.

The lawsuit follows “weeks of sniping between Twitter and the world’s richest man”, said Forbes. Twitter accused Musk of trying to back out of the agreement because his personal wealth has fallen, rather than because of worries over the prevalence of fake “bot” accounts on the site, as Musk claims.

Twitter accused Musk of conducting a “fishing expedition” in an attempt to get out of the deal, requesting “troves of sensitive data” to back up Twitter’s public statements about the number of fake accounts on its site. Musk has repeatedly said he did not believe the company’s public statements that roughly 5% of its active users are bots.

But the social media company said it was confident about its figures, and that minor inaccuracies wouldn’t be grounds to terminate the deal unless they threatened a “material adverse event”. It also said it has tried to cooperate with Musk’s “increasingly invasive and unreasonable requests”, including by offering some information it wasn’t contractually required to give up.

Musk agreed in April to buy Twitter but announced last week that he intended to walk away from the deal. Twitter is now suing him in the Delaware Court of Chancery, in an attempt to get Musk to abide by the terms of the agreement, according to The New York Times. In a letter to Musk’s lawyers on Sunday, Twitter’s legal team said that his move to terminate the deal was “invalid and wrongful” and that he “knowingly, intentionally, willfully and materially breached” his agreement to buy the company.

Will Twitter be successful?

Whatever qualms Musk may or may not have over bots on the site, he “signed a legally binding agreement with Twitter”, said The New York Times. “And in that contract, Twitter included a specific performance clause that allows it to sue to force the deal through, so long as the debt that the billionaire has corralled for the acquisition is in place”.

Brian J.M. Quinn, a professor at Boston College Law School, told the paper that Twitter’s legal arguments were strong. Quinn said that the filing used Musk’s tweets to show that the billionaire was aware of spam bots on Twitter before he signed the deal, with Musk once tweeting that “we will defeat the spam bots or die trying”.

“His lawyers are going to be very unhappy with the fact that he tweets,” said Quinn of Musk. “All the tweets that they can find, they are using against him.”

Twitter has hired heavyweight law firm Wachtell, Lipton, Rosen & Katz in its case against Musk, and in doing so “gains access to lawyers including Bill Savitt and Leo Strine, who served as Chancellor of the Delaware Chancery Court, where the case will be heard”, said Bloomberg.

In particular, Strine, who spent over 20 years working in the Delaware courts, most recently as chief justice of that state’s Supreme Court, “helped shape the legal norms that Musk will seek to test by terminating his agreement to acquire Twitter”, said the news site. And the Delaware court for which Strine spent so long working “typically frowns on efforts to back out of merger agreements”. 

A new deal?

“One way out of this for Musk and Twitter is to strike a deal at a lower price, but that is unlikely to happen before they get to court,” said MarketWatch

More likely is that they will reach a deal after Twitter proves its case against Musk, said Stephen Diamond, from the Santa Clara University School of Law, speaking to the news site.

“It’s possible if Twitter gets the performance order, they will use it to close, but maybe at a slightly lower price,” Diamond said, referring to the court potentially ordering Musk to make good on his agreement with Twitter. 

Another option is that Musk could choose to pay a $1bn “breakup fee” and walk away from the deal, “an option allowed only under certain circumstances, such as if Mr. Musk’s financing fell through”, said The New York Times. 

And while Twitter’s board and its stakeholders may now feel it is “best for Twitter to not be run by Musk”, said MarketWatch, nevertheless “the company will need his money to move forward”, as the company struggles to live up to its business and finance goals.

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