A drawn-out legal battle is expected to take shape following Tesla CEO Elon Musk’s (perhaps un)surprising withdrawal from his US$44bln merger agreement with social media platform Twitter.
Twitter chairman Bret Taylor made his thoughts clear on the withdrawal, stating on his own page: “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.”
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.
— Bret Taylor (@btaylor) July 8, 2022
Musk responded to the legal threat in typical memetic fashion in a clear attempt to position himself as the victor in the whole ordeal.
— Elon Musk (@elonmusk) July 11, 2022
The greatest point of contention between the two parties — the prevalence of spam accounts currently congesting the platform — could play out in the courts should Twitter go ahead with legal action.
Twitter has persistently played down the severity of its bot problem while refusing to disclose relevant data, much to the chagrin of Musk.
This puts Twitter in a tricky situation: If litigation goes ahead, there’s a good chance that this data will have to be released.
Musk is clearly elated over Twitter’s bind, but with US$44bln on the line, it’s doubtful whether this will deter the social media platform from commencing legal action.
The least painful outcome for Musk — barring a totally clean break — is to pay the $1bln cancellation fine.
But in a letter sent to the Securities Exchange Commission (SEC) by his lawyers from "white shoe" firm Skadden Arps on Friday July 8, it became clear that Musk is unlikely to comply, citing breaches to the merger agreement.
“Twitter has not provided information that Mr. Musk has requested for nearly two months notwithstanding his repeated, detailed clarifications intended to simplify Twitter’s identification, collection, and disclosure of the most relevant information sought in Mr. Musk’s original requests,” the letter stated.
Trump and Musk have quarrel
Terminating the deal may have impacted Elon’s friend circle just as much as his professional one, after Donald Trump labelled him as “another bull***t artist” at an Alaska rally on Saturday in support of Sarah Palin.
Their friendship recently blossomed when Musk switched allegiances from Democrat to Republican, though Trump had already praised the fellow billionaire more than once in the past.
“He does good at rockets,” Trump told CNBC back in 2020, lauding him as a genius akin to Thomas Edison.
Twitter shares drop
TWTR stock responded to the drama by dropping 6.98% in the Monday pre-market trade, knocking the share price down to US$34.25.
That’s well below the US$54.20 premium price tag that Musk was once willing to pay.
Analysts at Wedbush Securities have a sobering outlook for Twitter stock going forward, positing a 12-month price target of US$30 and a “neutral” rating overall.
“Let's be clear, Musk does not come out of this looking like roses. It's a black eye moment for him the way this circus show was handled since April and many investors will continue to view this as a buyers remorse situation,” said Daniel Ives and John Katsingris in a joint opinion.
Wedbush expects legal proceedings to last well into 2023, with “many challenges ahead” in store for stakeholders.
Who will win?
Legal opinion largely gives Twitter the edge in the dispute.
Despite an “access to information” clause baked into the merger agreement, the burden of proof rests on Musk, according to Ann Lipton, associate dean for faculty research at Tulane Law School.
Furthermore, the Delaware Courts, where the legal action has been filed, “have set a high bar for acquirers being allowed to abandon their deals”.
The direction this litigation will take will become clearer in the weeks ahead, but whatever happens, it’s likely to get messy.