Elon Musk Faces Uphill Battle In Upcoming Twitter Lawsuit, Legal Experts Say
Elon Musk will likely be forced to buy Twitter by a Delaware court despite his desire to get out of the deal, multiple legal experts report.
Twitter has pledged to sue Musk to make sure his planned acquisition of the company is completed after Musk’s attorney notified Twitter executives that the Tesla and SpaceX CEO would no longer be purchasing the social media giant. Musk has laughed off Twitter’s lawsuit, but experts suggest that his legal argument is dubious and he will likely be forced to purchase the site.
Musk offered to take Twitter private for more than $40 billion on April 10th after purchasing a minority share in the social media platform ten days prior. By April 25th, Twitter had agreed to Musk’s offer, but three weeks after that, the deal was “on hold” according to Musk, who cited a need to investigate a possible misrepresentation of the percentage of fake accounts on the platform.
Musk officially pulled the plug on the acquisition this past Friday.
But his legal odds are not favorable, in large part because when the parties initially inked the deal he agreed to something called a “specific performance clause,” senior policy analyst for technology at Americans for Prosperity James Czerniawski told the Daily Caller News Foundation. These clauses prevent a buyer who wants to kill or renegotiate a deal from finding something small that was misrepresented or inaccurate in the seller’s financial disclosures and using it to get out of the deal, NPR reported.
They “specifically say things like, you can’t back out unless it’s not just false, but incredibly false, hugely false, massively damaging to the company,” Ann Lipton, a Tulane University business law professor told NPR.
Czerniawski told the DCNF that its unlikely Musk’s complaints meet that threshold because Musk waived his right to due diligence commonly present in this kind of merger and Twitter has provided him with much of the data on fake accounts that he’s asked for.
This Twitter debacle is really a downer for everyone involved. This will be Elon’s most costly mistake. $twtr $tsla
— Ross Gerber (@GerberKawasaki) July 11, 2022
Twitter may feel pressured to make certain concessions and reach a settlement where Musk buys the platform for a lower price since making sure some version of the deal happens is “paramount” for Twitter, according to The New York Times. Twitter has struggled to find channels for growth in recent years and is currently trading around $33 per share—less than two-thirds of Musk’s offering price of $54.20.
Twitter struggled to make money before Musk’s offer, and without a buyout could be facing rough waters ahead, Czerniawski told the DCNF. The tech giant might consider taking a few dollars off its price per share to avoid a process of drawn out litigation and guarantee the deal stays together, he continued.
This is why Elon didn’t buy twitter. pic.twitter.com/3emRGmjKfj
— Maximus Decimus Meridius (@Most_Maximus) July 11, 2022
“Twitter appears to have a very strong legal argument but we’ve not seen a precedent at this scale or an opponent like Elon Musk so, there’s many questions about what he will do,” Adam Sterling, executive director of the Berkeley Center for Law and Business told CNBC.
Musk’s attorneys did not respond to the DCNF’s request for comment.
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