Elon Musk arrives on the In America: An Anthology of Fashion themed Met Gala on the Metropolitan Museum of Art in Latest York City, Latest York, May 2, 2022.
Andrew Kelly | Reuters
In the newest twist within the Elon Musk-Twitter saga, the world’s richest man told the social media company he not intends to purchase it. Twitter chairman Bret Taylor promptly fired back that the corporate intends to go to court to implement the $44 billion deal’s closure on the agreed upon price and terms.
Predicting how the drama will ultimately conclude is difficult, especially with the mercurial dealmaker involved. But listed here are eight possible scenarios.
In theory, this will likely be the cleanest option for everybody — no litigation, Musk agrees to pay the contract’s $1 billion termination fee and Twitter carries on, albeit at a valuation significantly lower than $44 billion. That is the trail Twitter co-founder Ev Williams appeared to back when he tweeted that he could be asking if “we will just let this whole ugly episode blow over” if he were still on the board.
The issue is the board may very well be breaching its fiduciary duty if it lets Musk walk − and Taylor’s response suggests Twitter has no intention of doing that.
Twitter also has a robust legal argument that Musk locked himself into buying the corporate for $54.20 a share. Allowing him to walk away after only paying the breakup fee would probably push Twitter’s shares even lower. They’ve already been trading at a big discount as investors query if and when a deal will occur. On Friday, the stock closed at $36.81.
“They cannot just say, ‘Alright, let’s spare us the pain, Elon, we’ll allow you to knock the worth down by $20 per share, or we’ll settle, we’ll conform to walk away when you just pay the billion-dollar break fee,” said Ann Lipton, a professor of corporate governance at Tulane Law School. “Twitter is just not ready to have the option to try this.”
There is not any precedent for a judge upholding a so-called “specific performance” clause to implement a contract for a deal as large as $44 billion. But there are examples of judges forcing buyers to shut deals even once they don’t need to.
In 2001, the Delaware Chancery Court ruled Tyson Foods had to purchase IBP Inc., then the biggest U.S. beef distributor, on the previously agreed upon price of $30 a share. Tyson had tried to tug out of the deal after each firms’ financial performance declined after the deal was signed — just as Musk is attempting to walk away from Twitter. A judge decided Tyson couldn’t just walk away due to buyer’s remorse, and the corporate was forced to accumulate IBP at its originally agreed upon price, which valued IBP at $3.2 billion. To today, Tyson owns IBP.
Tyson Foods Inc., sign at Tyson headquarters in Springdale, Ark.
April L. Brown | AP
Having the deal enforced may very well be the very best case scenario for Twitter investors, but could leave Twitter and its employees facing a volatile future. If Musk truly not desires to own Twitter, forcing it upon him may result in yet one more sale, more leadership changes, and an worker base caught in a whirlwind of uncertainly that would persist for years.
As Vanderbilt law professor Morgan Ricks tweeted, it’s possible a judge would decide to have Musk pay damages moderately than implement ownership, especially with Musk’s track record of flouting government rules and regulations. A judge could also be concerned that if Musk doesn’t wish to buy Twitter, he could make an ownership transition so difficult that the collateral damage could be brutal.
If that’s the case, a judge could order Musk to pay billions of dollars in damages to Twitter as a substitute of taking ownership. The quantity of damages paid could be as much as the court.
On this case, Musk would likely pay his $1 billion breakup fee and billions more in a brokered settlement with Twitter. The settlement would likely need to be enough that Twitter’s board would have the option to argue to investors it made the suitable fiduciary decision to take the settlement money as a substitute of pursuing litigation.
Should Musk prove that Twitter provided him false information, and that the true details have a materially antagonistic effect on the corporate, he could walk away without having to pay a breakup fee. In his filing on why he’s terminating the deal, Musk claims Twitter hasn’t complied with its contractual obligations after it signed the merger agreement.
Musk’s primary argument is that Twitter didn’t provide enough detail or evidence to point out its spam accounts are 5% or less of all accounts, as the corporate claims it estimates them to be.
“All indications suggest that several of Twitter’s public disclosures regarding its mDAUs [monetizable daily active users] are either false or materially misleading,” Musk and his lawyers wrote within the filing.
Sheldon Cooper/SOPA Images | Lightrocket | Getty Images
6. Musk changes his mind again
Musk’s motivation for attempting to end the deal is likely to be a negotiation tactic to get Twitter to lower the acquisition price. The market, and particularly some media and tech stocks, have come down significantly in value since April 25, the day Musk agreed to purchase Twitter. Social media peer Snap is down 50% in that period.
It’s possible Musk and Twitter could conform to a lower cost − likely with a really painful breakup fee to make sure he doesn’t attempt to renegotiate again − to regulate for the market correction.
This will likely be probably the most unlikely option of all, nevertheless it’s possible one other company could swoop in and buy Twitter at a lower cost than $54.20 per share. Twitter’s board could argue that deal provides more certainty than going to court with Musk.
Still, a scenario where one other buyer acquires Twitter seems more prone to occur after litigation, if Twitter loses or settles. Then, Musk could be out of the image, but Twitter could have explored its options to either get the total $44 billion or additional damages.
There aren’t any known buyers eager about buying Twitter.
WATCH: Elon Musk terminates Twitter deal and claims board in material breach