The Twitter vs Musk Case: What Happens If Twitter Wins?
Find out more about the Tesla CEO’s current battles with the social media platform.
Last April, the billionaire and Tesla CEO announced that he had successfully secured the acquisition of the influential social media company, Twitter. However, this ambitious project to turn Twitter into “a digital public square where vital issues for the future of humanity are debated” ( as declared by Musk) fell through a few months later. Indeed, Musk announced last July that he wanted to get out of the Twitter acquisition agreement. The billionaire also claimed that Twitter was in breach of several provisions of the deal and that the company had made "false and misleading statements" about its business, including the failure to disclose details about spam accounts on the platform, as Mr. Musk wants to know how many of the daily active users of Twitter are actually "bots", i.e. fake accounts. He also alleged that management refuses to provide information that would help determine that number accurately. Since 90% of the company's revenue comes from advertising, this information is essential for advertisers and for evaluating the company. Accusation that The management of twitter denies.
As a result, Twitter has filed a lawsuit against Mr. Musk in order to proceed with the acquisition. It is therefore up to the Chancery Court in Delaware, the state where most U.S. businesses are incorporated, to assess the fairest outcome based on the contract.
Some believe that the outcome of this lawsuit is outside of court, and especially through a settlement where Musk would pay Twitter a fee and withdraw from the deal. This article, which will be published in two parts, analyses the different possible outcomes if the parties decide to reach a judicial solution. Given that this first part concerns the case where Twitter wins the case.
In The Case That Twitter Wins
Should Twitter win this case, there are three possible scenarios:
The first scenario is the case where Musk is obliged to acquire Twitter at the agreed price. In fact, there is a good chance that the Delaware court will issue an injunction forcing Musk to proceed with the acquisition of Twitter. Some legal experts justify this position on the grounds that the Delaware courts set high criteria for acquirers to be allowed to abandon their operations. Indeed, the material aversion effect that constitute grounds for Musk to walk away from the deal has only been upheld once by the Delaware court in the Akorn, Inc. v. Fresenius Kabi AG, C.A. (Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL - which was upheld, for the first time under Delaware law, and is the ability of a buyer to terminate a merger based on a post-trial determination that a material adverse effect (MAE) occurred). This makes it more difficult for Musk to win his case because not only will he have to prove that the spam account numbers were fake, but that they were so fake that they will have a significant effect on Twitter's future revenue, as Ann Lipton, associate dean for faculty research at Tulane Law School, stated in a Reuters article published on July 11, 2022.
The second scenario would be that Musk is obliged to buy Twitter at a price lower than agreed in the agreement. In fact, Elon Musk had agreed to buy Twitter for $54.20 per share. However, at the time of withdrawing from the acquisition, Twitter's shares had fallen by more than 29% per share. As of today, Twitter's shares are still at $42.94 (Google Finance). Such an acquisition would be detrimental to Musk as he would be acquiring an overvalued company. This motive could therefore serve as a basis for the court to grant Musk the right to acquire Twitter at a lower price.
Last but not least, the court could decide in favour of Twitter by obliging Musk to pay the termination fee as provided in the agreement. Indeed, this termination fee amounts to one billion dollars, one of the highest termination fees (considering that Musk's acquisition of Twitter was going to be one of the biggest leveraged buy-out deals in history). By ruling this way, the court would allow Twitter to walk away with a billion dollar fee while allowing Musk to not proceed with the Twitter acquisition. A decision that would be beneficial to both parties as it is closer to what the parties agreed upon at the time of the deal.
By Shamma Geste