Elon Musk has spent the last couple of months crawling in the mud of Twitter. He released internal company data on the bot inspection sample size. He alleged that CEO Parag Agrawal misrepresented the daily estimates of Twitter users. He even accused the company of lying about the number of spambots and fake accounts on the platform, going so far as to call the Securities and Exchange Commission to investigate the matter.
Twitter responded on July 12 by suing Musk at the Delaware Chancellery after he said in a letter that he was relinquishing his ownership of the social media platform for $44 billion, arguing that it would be necessary to complete the deal.
In its lawsuit against the Tesla mogul, the platform devotes dozens of pages to publicly discrediting the company. Twitter’s lawyers describe his behavior as “a model of hypocrisy” and “bad faith”. It is said to have sunk the value of Twitter.
Still, Twitter’s lawsuit ultimately forces Musk to buy the platform, despite his “contempt for the company.”
Several legal observers point out that Twitter has an advantage in court. After all, Musk agreed to a specific performance, a move that ties the party to the terms of the contract as much as possible, and it doesn’t look like Twitter violated the merger agreement. But the case puts the court in an awkward position, which could force an unwitting buyer to actively try to sabotage the deal to buy a multibillion-dollar company.
“There is a real paradox at the heart of this dispute,” says Todd Henderson, a professor at the University of Chicago School of Law.
Greg Varallo, a partner at the law firm Bernstein Litowitz Berger & Grossmann, which regularly files cases in Delaware courts, notes, “It’s kind of weird to have a party that you don’t want to get married and say, ‘No, you have one. married.”
The specific action is rarely used and is usually reserved for cases where there is no other option. Henderson calls this “the ultimate act of coercion”. If Musk is forced to complete the proposed takeover of Twitter, he likens him to a worker forced to complete a contract to paint a house. “Instead of sitting in his house knowing he’s going to do a good job because his reputation is on the line, I’m now worried he won’t do a good job because he’s under pressure,” says Henderson.
Larry Hamermesch, a professor at Delaware Law School, says the court can “feel a little ridiculous ordering a specific performance for a buyer who doesn’t want to do it. [a deal] in general and may be interested in the dissolution of the society.”
However, there is precedent for Delaware courts to issue such orders. In April 2021, a court refused to let the private equity firm stay out of its deal to buy cake decorating company DecoPac. Earlier, in 2001, the chancellors processing the merger between Tyson Foods and IBP issued a specific statement, forcing the meat giant to complete the deal. They declined to find an “adverse material effect” – the same argument Musk is making in his bid to take over Twitter – that would have allowed the meat giant to back out of the deal.
But even so, one of the foreign ministers questioned whether Tyson was under pressure to complete the deal.
“Perhaps the most pressing concern on my mind is whether the specific performance is the appropriate remedy in light of the harsh words that were spoken during this trial,” Chancellor Leo Strine wrote in the ruling. “Can these management teams work together?” The answer is that I don’t know. [Chancellors] Peterson and Bond say they can. I’m not sure. “
Musk had some harsh words before the lawsuit on Twitter, accusing the company of violating securities laws. Your actions and tweets will be reviewed by the court to decide whether to force you to accept the settlement, according to Iman Annabtavi, a professor at the UCLA School of Law. While both parties have agreed to a specific compliance, the chancellor overseeing the case will have the power to decide whether this is an appropriate remedy. A Delaware court is not bound by any claim, regardless of what is provided for in the merger agreement.
“The strange aspect of this is that the court decides whether to grant a specific execution based on the practicality of the remedy,” says Anabtavi. “The question is whether Musk is a reluctant buyer or not, if possible.” This is part of the analysis.
Hammermesch notes that there are “cases where there were similar specific performance agreements and the court refused to enforce them”. He explains that the courts reject this type of coercive measure because “it’s uncomfortable to force someone to do something they don’t want to do”, especially in a business of this size.
according to a Wisconsin Law Review An article that analyzed over 1,000 M&A contracts found that over 80% of them listed specific performance as their preferred remedy. However, such a change is widely considered to be reserved for emergencies.
One reason specific performance is rarely awarded could be that failed deals often lead to renegotiations in court. Twitter may have a strong case, but litigation is unpredictable. In a similar case that ended in a settlement in 2020, Tiffany sued French luxury goods giant LVMH in a Delaware court. The company claimed the Louis Vuitton owner was trying to back out of the $16 billion purchase. LVMH ended up closing at a discount, albeit a small one, to Tiffany’s $15.8 billion valuation.
“It’s not uncommon for parties to renegotiate after cool heads prevail,” says Varallo.
The market does not believe that the deal will go through, at least not for the agreed price. If that were the case, Twitter’s stock would be closer to the $54.20 a share that Musk offered to buy the company.
“If you were 100% sure the judge would issue a specific performance, then you could buy Twitter for $36 today and two months from now. [later] “When that happens, you get $54.20,” says Henderson, “everybody buys.” The [current] The price reflects the uncertainty that the deal will close at that price. “
There’s also the question of the app if Musk is forced to buy Twitter. In that case, Musk will have to go back to the entities funding the deal to ensure they are still on board. If they are not, you will have to sue them in a New York court to have them acquitted. Their Obligations. In this scenario, Musk could have a conflict of interest because he would be motivated not to close the deal.
“He might say to his lawyers, ‘Look, do a [bad] The work: we don’t want to win this case,” says Henderson. “Meanwhile, Twitter is in limbo.”
Henderson said the outcome of the ruling, which ordered Musk to complete the deal, raises concerns about collateral lawsuits and slow funding. Musk is unlikely to be held in contempt of court if it appears he is trying to continue funding the acquisition.
In the short term, Twitter is likely to change to speed up the case. A trial could be scheduled for the end of October.
Source: Hollywood Reporter
Camila Luna is a writer at Gossipify, where she covers the latest movies and television series. With a passion for all things entertainment, Camila brings her unique perspective to her writing and offers readers an inside look at the industry. Camila is a graduate from the University of California, Los Angeles (UCLA) with a degree in English and is also a avid movie watcher.
