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4 cases lawyers for Twitter and Elon Musk will examine as they head to court


SpaceX founder Elon Musk reacts at a post-launch news conference after the SpaceX Falcon 9 rocket, carrying the Crew Dragon spacecraft, lifted off on an uncrewed test flight to the International Space Station from the Kennedy Space Center in Cape Canaveral, Florida, U.S., March 2, 2019. 

Mike Blake | Reuters

After Elon Musk said he was terminating his acquisition of Twitter, the social media company sued the billionaire to implement the transaction and cited a contract provision intended to stop a celebration from backing out of a deal.

The clause, referred to as specific performance, is often utilized in real estate cases to stop buyers and sellers from calling off deals without good reason. However it’s also included in corporate merger agreements as a strategy to force a buyer or seller to shut on a deal, barring material breaches resembling fraud.

In notifying Twitter on Friday of his plans to finish the deal, Musk’s lawyers made three arguments for why Twitter breached the contract. First, they claim Twitter fraudulently reported the variety of spam accounts, which the corporate has long estimated to be about 5% of users. Musk would wish to prove the variety of so-called bots is far higher and show a “material adversarial effect” on Twitter’s business for grounds to finish the deal.

Second, Musk’s lawyers say Twitter “failed to supply much of the information and data” Musk requested, although the contract says Twitter must provide reasonable access to its “properties, books and records.”

Last, Musk’s lawyers argue Twitter didn’t comply with a contract term that required the corporate to get his consent before deviating from its odd course of business. Musk cites Twitter’s decision to fireplace two “high rating” employees, shedding a 3rd of its talent acquisition team and instituting a general hiring freeze as examples of choices made without consulting him.

In its lawsuit filed with the Delaware Court of Chancery Tuesday, Twitter said Musk’s reasons for wanting to finish the deal are “pretexts” and accused him of acting against the deal since “the market began turning.” The corporate asked the court for a trial in September.

The Delaware Court of Chancery, a non-jury court that primarily hears corporate cases based on shareholder lawsuits and other internal affairs, has ruled on quite a few cases where an organization cited the precise performance clause to force a sale. None were nearly as large as Musk’s Twitter deal — $44 billion — and the main points underpinning them differ as well.

Still, past cases can provide context for a way the Musk-Twitter dispute might end.

IBP v. Tyson Foods

On this 2001 case, Tyson agreed to amass IBP, a meat distributor, for $30 per share, or $3.2 billion, after winning a bidding war. But when Tyson and IBP’s businesses each suffered following the agreement, Tyson tried to get out of the deal and argued there have been hidden financial problems at IBP.

Judge Leo Strine found no evidence that IBP materially breached the contract and said Tyson simply had “buyer’s regret.” That did not justify calling off a deal, he said.

The outside of a Tyson Fresh Meats plant is seen on May 1, 2020 in Wallula, Washington. Over 150 employees on the plant have tested positive for COVID-19, based on local health officials.

David Ryder | Getty Images

Strine ruled Tyson had to purchase IBP given the contract’s specific performance clause.

“Specific performance is the decisively preferable treatment for Tyson’s breach, as it’s the only method by which to adequately redress the harm threatened to IBP and its stockholders,” Strine wrote.

Greater than 20 years later, Tyson still owns IBP.

The Tyson deal differs in a couple of key ways, nonetheless. Tyson hoped a judge would allow it to walk away from the deal partially because of great deterioration to IBP’s business after the agreement was signed. Musk is arguing false and vague details about spam accounts should allow him to walk.

Also, unlike Tyson’s deal for IBP, Musk’s acquisition of Twitter involves billions of dollars in external financing. It’s unclear how a choice in favor of Twitter would affect potential funding for a deal or whether that might impact closing.

Strine now works at Wachtell, Lipton, Rosen & Katz, the firm Twitter hired to argue its case.

AB Stable v. Maps Hotels and Resorts

On this 2020 case, a South Korean financial services company agreed to purchase 15 U.S. hotels from AB Stable, a subsidiary of Anbang Insurance Group, a Chinese company, for $5.8 billion. The deal was signed in September 2019 and scheduled to shut in April 2020.

The client argued Covid-19 shutdowns were cause for a fabric adversarial effect on the deal. The vendor sued for specific performance.

Judge J. Travis Laster found that hotel shutdowns and dramatic capability reductions breached the “odd course” of business clause, and ruled that the customer could get out of the deal.

The Delaware Supreme Court affirmed the choice in 2021.

Tiffany v. LVMH

In one other Covid-related case, LVMH originally agreed to purchase jewelry maker Tiffany for $16.2 billion in November 2019. LVMH then attempted to scrap the deal in September 2020 throughout the pandemic, before it was set to shut in November. Tiffany sued for specific performance.

On this case, a judge never issued a ruling, since the two sides agreed to a lowered price to account for the drop in demand throughout the Covid-induced global economic pullback. LVMH agreed to pay $15.8 billion for Tiffany in October 2020. The deal closed in January 2021.

A Tiffany & Co. store front in Mid-Town, Latest York.

John Lamparski/SOPA Images | LightRocket | Getty Images

Genesco v. Finish Line

Footwear retailer Finish Line initially agreed to purchase Genesco for $1.5 billion in June 2007 with a closing date of Dec. 31, 2007. Finish Line attempted to terminate the deal in September of that 12 months, claiming Genesco “committed securities fraud and fraudulently induced Finish Line to enter into the deal by not providing material information” concerning earnings projections.

As with the Tyson case, the Delaware Chancery Court ruled Genesco had met its obligations and that Finish Line simply had buyer’s remorse for paying an excessive amount of. Markets had begun to crash in mid-2007 throughout the start of the housing and financial crisis.

But relatively than going through with the deal, either side agreed to terminate the transaction, with Finish Line paying Genesco damages. In March 2008, with the credit market cratering, Finish Line and its primary lender UBS agreed to pay Genesco $175 million, and Genesco received a 12% stake in Finish Line.

Genesco stays an independent publicly traded stock to this point. JD Sports Fashion agreed to purchase Finish Line for $558 million in 2018.

WATCH: Elon Musk backs out of Twitter deal, possibly heading to court

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