In the letter to Musk’s legal representatives, the lawyers note that his termination of the deal is “invalid and unlawful from the company’s point of view.” Contrary to Musk’s claims, Twitter did not violate the takeover agreement. In contrast, Musk’s withdrawal violates the agreement “knowingly, intentionally, deliberately and materially.“
All agreements concluded so far remained in force, according to the lawyers of the large law firm Wachtell, Lipton, Rosen &Katz. The concluded contracts required “that Mr. Musk and the other Musk parties fulfill their obligations under the agreement, (… to the best of our ability, the (..) to carry out the intended transaction.” Twitter will continue to provide all the information requested by Musk.
Twitter announced that it would go to court at the company’s official headquarters in the state of Delaware. The Delaware Chancery Court can also order the completion of a takeover there. Musk announced on Friday that he was withdrawing from the agreement to buy Twitter for about $ 44 billion.
Elon Musk accuses Twitter of lack of transparency
Most recently, the Tesla BOSS had been closed in the cause. On Saturday he spoke on a technology conference in Sun Valley, Idaho, where billionaires and CEOs from the tech and media world have been meeting for years. But a day after he dropped the Twitter deal, Musk held back with details, according to US media reports. Instead, he talked about his plans to populate Mars.
However, this does not mean that the topic of Twitter can already be put on file. Musk’s lawyers had accused the short message service on Friday of breaking several points of the takeover agreement. Among other things, Twitter is said to have repeatedly transmitted insufficient data to Musk. After analyzing the existing data, Musk’s team apparently came to the conclusion that the number of so-called spam accounts was “significantly higher” than the approximately five percent that Twitter management assumes.
In addition, the lawyers complain about the many departures of important employees since Musk announced the acquisition in April. This deviates from Twitter’s obligation to continue the business in a regulated manner. Musk is no longer tied to his purchase offer, they concluded.
But Musk couldn’t get away with it that easily, legal experts predict. The board of directors of the social network has announced that it will force Musk to pay the $ 44 billion takeover in court.
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.
– Bret Taylor (@btaylor) July 8, 2022
The chances are good, says John Coffee, a professor at Columbia Law School in New York. “We’ll see if Elon Musk is above the law,” he told the Financial Times. However, he is confident “that the answer will be no. The laws are pretty clear that you can’t just withdraw a takeover offer like he thinks you can.“
Elon Musk faces a fine of more than a billion dollars
Twitter is in a good position to prove that they have provided Musk with the necessary information and that he is only looking for an excuse to end the deal, says Ann Lipton, a professor at Tulane Law School in New Orleans. This means that Musk could have to pay significantly more than the agreed penalty of one billion dollars if the takeover fails. For this so-called “break-up fee” certain conditions must be met.
Since April, the financial conditions for Musk have deteriorated significantly. The 51-year-old is the richest man in the world with an estimated fortune of around 240 billion dollars. But Tesla stock, which makes up a large part of his fortune, has lost about a quarter of its value since the Twitter deal was announced. After all, Musk had to sell a considerable part of his Tesla shares to finance the deal.
Elon Musk drops Twitter deal
The mood in the markets has also deteriorated significantly. The Twitter stock, which Musk actually wanted to buy for $ 54.20 apiece, currently costs only $ 36.81, and the trend is falling. Dan Ives, an analyst at Wedbush Securities, expects the Twitter paper to drop to $30 per share. That would be an enterprise value of 23 billion dollars – 21 billion dollars less than Musk originally wanted to pay for it.
Whether there will actually be a showdown in court, however, remains to be seen. “The fact that Twitter finds itself in a ‘Game of Thrones’-like court battle with the richest person in the world is not exactly the vision that the company had when Musk made the takeover offer in April,” analyst Ives points out.
Court cases can eventually take years, which could deter employees and further weigh on the share price. Therefore, according to experts, it is also conceivable that Musk and Twitter could agree on a higher penalty payment out of court or renegotiate the purchase price.
Without Musk as a buyer, Twitter faces old, unresolved problems: “User growth is slowing down. Advertising revenue is still marginally up“” writes Debra Aho Williamson, an analyst at Insider Intelligence. “But if the economy cools down, it could lead to lower revenues for all social media.“
