While Musk may want to end his bid for Twitter, it’s not as easy as simply walking away, according to legal experts. Instead, Musk likely faces a lengthy court battle with Twitter that could take many months to resolve. Twitter’s board is in a very difficult position, said Ann Lipton, a professor of corporate governance at Tulane Law School. “They can’t just say, ‘OK, save us the pain, Elon, we’ll let you cut the price by $20 a share, or we’ll settle, we’ll agree to walk away if you just pay the billion-dollar charge. I mean the Twitter is not in a position to do that.” Doing so would risk a lawsuit from Twitter shareholders, he added. Twitter shareholders have already filed a lawsuit against the company and Elon Musk himself over the chaotic deal. Merger deals are “very hard to get out of,” and so far, Musk appears to have provided insufficient evidence to support his claims that Twitter lied about his spam data, Lipton said. Meanwhile, Twitter chairman Bret Taylor has already promised that the company’s board will take legal action against Musk. “Twitter’s board is committed to closing the transaction at the price and terms agreed upon with Mr. Musk and plans to take legal action to enforce the merger agreement,” Taylor tweeted. “We are confident that we will prevail in the Delaware Court of First Instance,” Taylor added, referring to a Delaware court that resolves disputes between businesses. Musk signed a legally binding agreement in April to buy Twitter for $54.20 per share. The agreement states that if either party breaks the deal, they will be required to pay a $1 billion fee. Shortly after the deal was reached, Musk began to hint that he was having second thoughts about the deal. In May, Musk said he decided to put the Twitter acquisition on hold as he evaluated the company’s claims that about 5% of monetized daily active users (mDAU) are spam accounts. Twitter said it continued to share information with Musk, including turning down his “fire,” the daily stream of tweets that flow through the platform. In a letter on Friday, Musk’s lawyers accused Twitter of “material breach of multiple provisions” of the agreement and claimed the company made “false and misleading statements” about the prevalence of fake accounts on its platform. “There are many reasons to doubt this [Twitter] made such misrepresentations, but assuming he did, that’s not really a reason to void a merger agreement,” Lipton said in an interview. In order for there to be a “material breach” of the agreement, Musk would have to prove that Twitter made misrepresentations that were so egregious that they would have a long-term impact on the company’s earnings potential, Lipton said. “He has yet to provide evidence that this is actually the case,” he 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 complete the deal as long as it still has the debt financing. In the coming days, Twitter will likely file a lawsuit in Delaware and ask a judge to rule on whether it violated the terms of the agreement and then order Musk to “fulfill his obligations under the contract and complete the merger,” he said. Brian Quinn. professor at Boston College Law School. After that, Quinn said he expects both sides to continue making their case in court, as part of a legal process that could take a year to complete. “For litigation, that’s fast,” he added. Musk and Twitter could also reach a deal. Twitter may agree to a small change in the deal price of $54.20 per share to avoid litigation, Lipton said. That might not please Twitter shareholders who liked the first offering. The purchase price represents a 38% premium to the company’s closing share price of $39.31 on April 1, 2022, which was the last day of trading before Mr. Musk disclosed his approximately 9% stake in the company. Shares of Twitter closed at $30.04 on Friday. It’s unclear what Musk would settle for, Lipton said. “I don’t know that Musk just wants to knock a dollar or two off the price per share,” he said. “I think Musk wants to not have the deal or a pretty dramatic repricing. So I don’t think the parties are close to being settled right now.”
