The Atlantic headline: Elon Musk Is a ‘Nightmare Client’
Sub-headline: Musk cites three reasons for terminating his merger with Twitter. A new lawsuit points out why each of those reasons is extremely flimsy.
By Derek Thompson
https://www.theatlantic.com/ideas/archive/2022/07/musk-twitt…
Just days after Elon Musk announced that he was seeking to terminate his deal to buy Twitter, the social-media company filed a 62-page lawsuit against Musk, claiming he was in violation of his agreement and was legally bound to buy the firm. (Musk responded on Twitter: “Oh the irony lol.”) Musk had claimed that the company withheld information about the number of spam bots, or false accounts, on its platform. Twitter argued that Musk is creating flimsy excuses to walk away from a deal because both his net worth and the value of Twitter have plunged since April.
Twitter’s lawsuit is an extraordinary and odd document. It paints Musk as a dishonest and unserious hypocrite, the sort of person you would never want running your company. But because this same dishonest and unserious hypocrite has signed a document offering to pay a huge premium to shareholders, Twitter’s board is bound by its fiduciary duty to enforce a merger neither Musk nor Twitter’s employees seem to want. It’s an awfully strange twist to the marriage-plot genre: I hate your guts, now marry me! This is shareholder capitalism as romantic comedy.
To understand the situation a little better, I reached out to Brian JM Quinn, a professor at Boston College Law School whose research focuses on corporate law and mergers and acquisitions.
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The last two questions with answers in this interview:
https://www.theatlantic.com/ideas/archive/2022/07/musk-twitt…
Thompson: How does this end?
Quinn: The Twitter board would like to do the deal. Because the best thing for their stockholders is to get the $54 a share. But if they can’t get that, $50 a share is good, too. If Musk says $36, that might be too big a delta.
But the other thing that could happen is Twitter says, You don’t want to buy us, and we don’t want you to buy us, either. Musk offered to buy Twitter for $54 a share. Now Twitter is trading around $35 a share. Maybe Twitter says, Give us $20 a share, and you can walk away with nothing. That’s the beginning of a real negotiation.
Thompson: What if the court orders Musk to pay up and he just says no?
Quinn: Delaware lives and dies by corporate law. If Delaware is unable to enforce an order, Delaware goes out of business. So enforcing an order is of the highest priority for a Delaware court. Delaware has a sequestration statute that permits a judge in the Chancery Court to order the seizure of a party’s assets in order to secure their appearance in court. Tesla is incorporated in Delaware. So, in theory a court could seize Tesla shares in order to compel Musk. A Delaware court will not be pushed around by Elon Musk.
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There is also a $1B breakup fee if the deal fails to close.
Musk claims they failed to provide info on the number of fake accounts as requested. They say info was provided. And he agreed to skip due diligence.
I think its likely a deal will be negotiated maybe under court supervision. No telling how it will come out. If he will pay a breakup fee or a deal will be made to acquire at a reduced price.
Quinn: Delaware lives and dies by corporate law. If Delaware is unable to enforce an order, Delaware goes out of business. So enforcing an order is of the highest priority for a Delaware court. Delaware has a sequestration statute that permits a judge in the Chancery Court to order the seizure of a party’s assets in order to secure their appearance in court. Tesla is incorporated in Delaware. So, in theory a court could seize Tesla shares in order to compel Musk. A Delaware court will not be pushed around by Elon Musk.
The Legal AF podcast was discussing this. One of the lawyer participants pointe out that the Delaware Chancery Court has ruled in many cases like this and with only ONE exception ruled in favor of forcing the merger. That was a case where a pharmaceutical company had made false claims about the tests and efficacy of the drugs in their pipeline.
I would not be surprised if Tesla and SpaceX both end up on the auction block.
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