The question is whether Mr. Musk will be legally bound to honor his agreed acquisition or allowed to back out, potentially paying a 10-figure fine. Most legal experts say Twitter has the upper hand, in part because Mr. Musk attached few strings to his deal to buy the company, and the company is determined to enforce the deal. But Mr Musk revels in impulsiveness and aggression and is backed by a fleet of top bankers and lawyers. Rather than engage in a protracted public dispute with the world’s richest man and his legions of die-hard followers, Twitter may find itself under pressure to find a quick and relatively peaceful solution — one that could preserve the company’s independence. but to leave her in a weak financial position. Mike Ringler, a partner at Skadden, Arps, Slate, Meagher & Flom who represents Mr. Musk, informed Twitter late Friday that his client was abandoning the acquisition. Mr. Ringler argued in his letter that Twitter had breached its agreement with Mr. Musk by not providing him with detailed information about how it measures inauthentic accounts. He also said Mr Musk did not believe the metrics Twitter has released about how many of its users were fake. Twitter’s board responded by saying it intended to complete the acquisition and would sue Mr. Musk in a Delaware court to force him to do so. At the heart of the dispute are the terms of the merger agreement Mr. Musk struck with Twitter in April. His contract with Twitter allows him to terminate the deal by paying a $1 billion fee, but only under certain conditions, such as losing debt financing. The agreement also requires Twitter to provide data that Mr. Musk may require to complete the transaction. Mr Musk has asked Twitter to provide a detailed record of spam on its platform. Throughout June, lawyers for Mr. Musk and Twitter argued over how much data to share to satisfy Mr. Musk’s questions. Mr Musk’s cold feet on the Twitter deal coincided with a huge slide in the valuation of tech companies, including Tesla, the electric vehicle company he runs, which is also the main source of his wealth. Mr. Musk did not respond to a request for comment. Twitter maintains that its spam figures are accurate, but has declined to publicly provide details on how it detects and counts spam accounts because it uses private information such as users’ phone numbers and other digital clues to their identity. to determine if an account is not authentic. A Twitter spokesman declined to comment on when Twitter planned to sue to enforce the merger agreement. “The bottom line is: The court says Musk can step away,” said David Larcker, a professor of accounting and corporate governance at Stanford University. “Another result is that he is forced to complete the agreement and the court can enforce it. Or there may be some middle ground where there is price renegotiation.” For Twitter, completing a sale to Mr. Musk is crucial. She closed her deal with Mr. Musk as tech companies enjoyed bullish valuations. Some, such as Snap and Meta, have now plummeted as they face advertising pressures, global economic turmoil and rising inflation. Twitter’s stock has fallen about 30 percent since the deal was announced and is trading well below Mr. Musk’s offer price of $54.20 a share. Legal experts said Mr. Musk’s spam controversy could be a ploy to force Twitter back to the negotiating table in hopes of securing a lower price. During the deal, no other potential buyer emerged as a white knight alternative to Mr. Musk, making his offer the best Twitter is likely to receive. Twitter’s trump card is a “specific performance clause” that gives the company the right to sue Mr Musk and force him to complete or pay for the deal, as long as the debt financing it has written off remains intact. Forced takeovers have happened in the past: In 2001, Tyson Foods tried to pull out of its acquisition of meatpacking company IBP, citing IBP’s financial problems and accounting irregularities. A Delaware court vice president ruled that Tyson should complete the acquisition, But legal authority is different from practical reality. A lawsuit would likely cost millions in legal fees, take months to resolve, and add further uncertainty to already frustrated employees. Agreement disagreements often result in settlements or price renegotiations. In 2020, luxury giant LVMH Moët Hennessy Louis Vuitton tried to scrap its $16 billion deal to buy Tiffany & Company, ultimately securing a discount of about $420 million. “These things are a bargaining chip in a financial transaction,” said Charles Elson, a recently retired professor of corporate governance at the University of Delaware. “It’s all about money.” A lower price would benefit Mr. Musk and his financial backers, especially as Twitter faces financial headwinds. But Twitter has made clear it wants to force Mr Musk to stick to his $44 billion offer. The most damaging outcome for Twitter would be for the deal to collapse. Mr Musk would have to show that Twitter materially and willfully breached the terms of his contract, a high bar that buyers have rarely met. Mr. Musk claimed that Twitter was withholding information necessary to close the deal. He has also argued that Twitter misreported its spam figures and misleading statistics hid a serious problem with Twitter’s business. An acquirer has only once successfully argued in a Delaware court that a material change in the target company’s operations enables it to exit the deal cleanly. This was the case in 2017 with healthcare company Fresenius Kabi’s $3.7 billion acquisition of pharmaceutical company Akorn. After Fresenius signed the deal, Akorn’s profits fell and it faced allegations from a whistleblower that it violated regulatory requirements. Even if Twitter can show it did not violate the merger agreement, a chancellor in a Delaware court could allow Mr. Musk to pay damages and walk away, as in the case of Apollo Global Management’s deal to combine chemical companies Huntsman and Hexion in 2008. . (The lawsuits ended in a broken agreement and a $1 billion settlement.) Forcing a buyer to buy a company is a complicated oversight process, and a chancellor may not want to order a buyer to do something he ultimately doesn’t follow through on, a risk that is particularly acute in this deal given Mr. Musk’s habit to violate legal boundaries. “The worst-case scenario for the court is that they issue an order and they don’t comply, and they have to figure out what to do about it,” said Morgan Ricks, a professor at Vanderbilt Law School. While Mr. Musk typically relies on a small circle of insiders to manage his businesses, which include rocket maker SpaceX, he has hired a larger legal team to oversee the Twitter acquisition. In addition to his personal attorney, Alex Spiro, he had retained attorneys from Skadden, Arps, Slate, Meagher & Flom. Skadden is a corporate law firm with plenty of experience arguing cases before Delaware court, including LVMH’s attempt to stop its takeover of Tiffany. For its part, Twitter has deployed lawyers from two firms, Wilson Sonsini Goodrich & Rosati and Simpson Thacher & Bartlett, to handle the deal. Wilson Sonsini is Twitter’s longtime legal counsel, who built his reputation on deals in venture capital and technology. Simpson Thacher is a New York-based law firm with extensive experience in general corporate mergers and acquisitions. If Twitter renegotiates its acquisition price or accepts a breakup, it will likely face more legal trouble. Shareholders will sue under either scenario, adding to the many shareholder lawsuits Twitter is already facing over the acquisition. In April, financial analysts called Mr. Musk’s price a low-grade bid, and Twitter shareholders could balk if the company agrees to lower its takeover price further. A split could also bring additional legal scrutiny to Mr. Musk. The Securities and Exchange Commission revealed in May that it was looking into Mr. Musk’s purchases of shares in Twitter and whether he properly disclosed his stake and his intentions for the social media company. In 2018, the regulator secured a $40 million settlement from Mr. Musk and Tesla over allegations that his tweet falsely claiming he had secured financing to take Tesla private amounted to securities fraud. “At the end of the day, a merger agreement is just a piece of paper. And a piece of paper can get you sued if your buyer gets cold feet,” said Ronald Barusch, a retired mergers and acquisitions lawyer who worked for Skadden Arps before representing Mr. Musk. “A lawsuit doesn’t get you a deal. It generally gives you a lingering headache. And a ruined company.”
