Elon Musk just couldn’t help himself Monday morning. After announcing the end of his $44 billion takeover of Twitter, he addressed the platform he no longer wants to buy and mocked the likely legal response.
Musk’s tweet to his 100 million followers read: “They want to force me to buy Twitter in court.” Twitter did have grounds to seek an order requiring Musk to buy the business, though he withdrew in a dispute over the number of spam or bots accounts on the platform.
But, as is often the case with the deal itself, the world’s richest man doesn’t seem to be taking the threat seriously. “Now they have to disclose information about the bot in court,” read one caption in the tweet, illustrated by a series of photos of Musk laughing uproariously. It was followed by a photo of retro action star Chuck Norris on a chessboard, with Musk tweeting below: “Chuckmate.”
Despite being surrounded by the best advisers money can buy, Musk has had a tumultuous relationship with the legal intricacies of the now-abandoned $44bn (£37bn) takeover of Twitter. On the one hand, his legal team has filed strongly argued disclosures against the deal, citing various clauses in the agreement. On the other hand, he posts poo emoticons to the people he is negotiating with.
Indeed, the scatological cartoon aimed at Twitter CEO Parag Agrawal likely violated a merger agreement that Musk has now repudiated. More than two months ago, Musk signed an agreement to buy the social media platform that contained a clause in which he promised not to “neglect” the company or its employees.
A day later, Musk engaged in criticism of the company’s staff on the platform, including Twitter’s legal chief Vijaya Gade. Twitter’s former CEO, Dick Costolo, accused Musk of harassing Gade.
what’s happening? You are harassing and threatening an executive at the company you just bought.
— dick costolo (@dickc) April 27, 2022
It was the first sign that Musk was not taking the deal seriously, or at least unwilling to limit his behavior in accordance with the deal agreement. That probably didn’t surprise Twitter, given the clause included in the deal and Musk’s previous history on Twitter. In 2018, Musk reached a settlement with the US financial watchdog over a tweet in which he said he had “secured funding” for a proposal to delist Tesla.
According to one legal expert, Musk’s behavior violated the agreement, but Twitter’s desire to close the deal outweighed their concerns. “Yes, some of his tweets violated the agreement, but there’s no real solution here because it doesn’t matter how much Musk belittles Twitter. They want to make this deal,” said Brian Quinn, an associate professor at Boston College Law School.
Twitter said it would go to court in Delaware, the US state that has jurisdiction over the deal, to “enforce the merger agreement.” His options include asking for a $1 billion break fee from Musk or asking a judge for “specific performance,” meaning a requirement that Musk move forward with the agreed-upon transaction at $54.20 per share. Musk certainly suggests that Twitter will choose the latter.
Musk seemed serious about buying the business when news of his offer broke on April 14, even if the $54.20 price hinted at a weed joke, given that “420” is slang for marijuana. The billionaire said he wants to unleash the platform’s “tremendous potential” to promote free speech and democracy around the world. He told a TED conference: “Having a public platform that is widely trusted is extremely important for the future of civilization.”
Even as it became clear that Musk was headed for the exit, he sat down with the Twitter team in a Q&A where he said he wanted the platform to contribute to “a better, long-lasting civilization.” He also cared enough about the business to put together a financing package that included $13 billion from banks and a commitment of more than $30 billion from his own pocket, although that included contributions from cryptocurrency trading platform Binance and tech mogul Larry Ellison.
Nonetheless, his hot-and-cold demeanor left some observers wondering how serious he was about buying the company. If he intended to buy the company at first, the recent crash in tech stocks helped change his mind, said Drew Pascarella, a senior lecturer in finance at Cornell University.
“Elon is a bold and controversial public figure. Twitter is a platinum social media platform that Elon himself has used, controversially, for years. Acquiring the asset and being able to control it is the ultimate boss move,” says Drew. “I really think Elon was serious and the banks were too. Given what has happened to the equity value since the deal, he risks looking very foolish by paying what is now an unusual price.
Shares of Twitter, which fell 6.5% in opening trading in New York on Monday to $34.46, are down about 20% so far this year and could be expected to fall further if Musk leaves for good. The Nasdaq tech index is giving an insight into the broader market after falling 25% so far this year.
Musk’s lawyers are among the few legal voices who think he has a chance in Delaware. His argument centers on the truth of Twitter’s statement in its quarterly filings that spam accounts represent less than 5% of its daily active user base, which currently stands at 229 million people. Twitter has said this consistently since 2014 and has provided Musk with public tweet data in an attempt to convince him his valuation is solid.
Musk’s argument for scrapping the deal is threefold: that Twitter breached the agreement by not providing enough information about spam accounts; that Twitter misrepresented the number of spam accounts in its disclosures to the US financial watchdog; and that the company breached the agreement by failing to consult with Musk in recently firing senior employees.
Quinn and others think Musk won’t make it. “Does Musk have a strong legal case? In short, no,” Quinn says. Lawyers not involved in Musk’s case say his requests for information were not reasonable, that it is highly unlikely he will be able to prove the spam assessment was false and that the firing of senior executives was part from the day-to-day work of running the company.
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However, some legal and corporate experts also believe both sides will reach an agreement to avoid a situation where Musk is forced to buy a company he doesn’t want amid a legal battle that further hurts morale and price of the shares of a commercial company.
Whatever happens next, anyone who sells a business to Musk in the future is likely to proceed with caution, according to Anat Alon-Beck, a professor and business law expert at Case Western Reserve University. “I definitely think his behavior will make it very difficult to buy other companies,” she said.
But Pascarella said companies will pay attention when a $220 billion entrepreneur comes calling. “No board should ignore proposals from the world’s richest man simply because of his erratic behavior,” he said, although firms would need to “negotiate clear and robust deal protections.”
Twitter is about to find out just how robust its defenses are. In the meantime, Musk will no doubt continue to tweet on a platform he now prefers to use rather than own.
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