Elon Musk on Friday moved to break off his agreement to buy Twitter. However, Twitter chairman Bret Taylor, said he intends to see the deal through and said the company plans to take legal action against Musk if he makes the move. This means if Twitter files a lawsuit against Musk, the parties are likely to face a long legal battle ahead.
Billionaire Elon Musk on Friday moved to pull out of his $44 billion arrangement to purchase Twitter, citing continued disagreements over the number of spam accounts on the platform.
While Musk might want to end his bid for Twitter, it’s not quite as simple as leaving, as per legal experts. All things being equal, Musk probably faces a long fight ahead with Twitter in court that could require numerous months to decide.
Twitter’s board is in an extremely challenging position, as they can’t simply let it go that way. As a matter of fact, Twitter is only not in that frame of mind to have the option to do that.
Doing so would risk setting off a lawsuit by Twitter investors, according to experts. Twitter shareholders have previously filed a a lawsuit against the organization and Elon Musk himself over the turbulent arrangement.
An insider says, Merger agreements are “very hard to get out of,” and so far, Musk appears to have provided insufficient evidence backing up his claims that Twitter lied about its spam figures.
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,” Taylor added, referring to a Delaware court that settles disputes among businesses.
Musk signed a legally binding agreement in April to buy Twitter for $54.20 a share. The agreement states that if either party broke off the deal, they’d be required to pay a $1 billion breakup fee.
Not long after the agreement was reached, Musk started to imply that he was reconsidering about the arrangement. In May, Musk said he chose to put his purchasing of Twitter “on hold” as he evaluated the organization’s cases that around 5% of its monetizable everyday active users (mDAUs) are spam accounts.
Twitter has said it has kept on sharing information to Musk, including turning over its “firehose,” the day to day stream of tweets that course through the platform.
In a letter on Friday July 8, Musk’s legal counselors blamed Twitter for a “material breach of multiple provisions” of the deal agreement and claimed the company made “false and misleading representations” about the prevalence of fake accounts on its platform.
“There’s a lot of reason to doubt that it [Twitter] made such misrepresentations, but let’s assume that it did, it’s actually not a reason to cancel a merger agreement,” Twitter’s Lipton said in an interview.
In order for there to be a “material breach” of the deal agreement, Musk would have to prove that Twitter made false statements that were so egregious they’d have a long term impact on the company’s earnings potential, Lipton further added.
Twitter appears to have the upper hand as the deal drama heads to court, Lipton said. The merger agreement includes a “specific performance clause,” which says Twitter has the right to sue Musk to force him to go through with the deal, as long as he still has the debt financing in place.
In the coming days, Twitter will likely file a lawsuit in Delaware and ask the judge to rule whether it violated the terms of the agreement, then order Musk to “perform his obligations under the contract and complete the merger,” said Brian Quinn, a professor at Boston College Law School.
After that, Quinn said he expects both parties will continue to make their arguments in court, as part of a litigation process that could take a year to play out. “For litigation, that’s quick,” he added.
Twitter might agree to a minor change in the deal price of $54.20 per share in order to avoid litigation. That may not please Twitter shareholders who liked the first offer. The purchase price represents a 38% premium to the company’s $39.31 closing stock price on April 1, 2022, which was the last trading day before Mr.
Musk disclosed his approximately 9% stake in the firm. Shares of Twitter closed at $30.04 on Friday. Perhaps, Musk wants to not have the deal or a fairly dramatic repricing.