Published - July 11, 2022 @ 12:47 PM (EET) [Edited: 15.07]
On Friday, the world's wealthiest man Elon Musk, submitted a filing to terminate its $44 billion takeover deal of Twitter Inc. (NYSE:TWTR), citing continued disagreements over the number of spam accounts on the platform.
Together with his Skadden, Arps, Slate, Meagher & Flom LLP lawyer Mike Ringer, Mr. Musk alleged that the company appears to have misrepresented the number of spam accounts on its platform, disputing Twitter's contention that they make up less than 5% of total users.
While Musk may want to end his bid for Twitter, he can't just walk away from the contract. The billionaire co-founder of Tesla Inc. will need to make his case before a judge in Delaware after Twitter shareholders filed a lawsuit against the company and Elon Musk himself over the chaotic deal.
[Edit]: Twitter sued Mr. Musk Tuesday seeking to enforce their merger agreement while the lawsuit lays the groundwork for a complex examination of how Twitter estimates fake and spam accounts.
"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," wrote Chairman Bret Taylor in a Tweet.
Delaware is the corporate home to over half of US public companies, including Twitter, and more than 60% of Fortune 500 firms.
The Court of Chancery, which deals with cases without juries and can't award punitive damages, frowns on efforts to back out of merger agreements, and judges will have a say over whether breakup fees must be paid. The fee in the Musk-Twitter deal is $1 billion.
According to Corporate law experts, Twitter appears to be on a sounder legal footing than Mr. Musk since the filing didn't provide evidence to back up his argument about inaccurate estimates or an alternative calculation.
Yet, it's still unclear whether the potential lawsuit will eventually end up with Musk purchasing the platform, either at the previously agreed price, a re-negotiated price, or not at all. In addition, the question remains whether it really is possible to force Musk to buy a company he doesn't want to own.
"They don't really have tools to force him to go through with it. You don't put people in jail because they don't want to buy something." - Zohar Goshen, professor of transactional law at Columbia Law School.
Given that Twitter's prospects as a stand-alone company are daunting in part because of a digital-advertising market in upheaval, the standoff leaves Twitter in a precarious position.
On Friday, Twitter shares closed at $36.81, 32% below the $54.20-a-share price Mr. Musk agreed to pay.
