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Twitter could sue Elon Musk

Nicholas by Nicholas
July 10, 2022
in News
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TAccording to experts, witter has a good chance of successfully defending himself in court against the withdrawal of Tesla boss Elon Musk from the $44 billion takeover. It is also conceivable that the short message service will decide to renegotiate or settle instead of conducting a lengthy legal battle against Musk to force him to buy under the terms agreed in April.

According to experts, the courts in the US state of Delaware, where the dispute could be fought, have set the bar high for withdrawal from takeovers. However, the scorned companies often prefer the security of a renegotiated deal at a lower price or monetary compensation to litigation, which can drag on for many months.

“The fact that litigation is expensive speaks in favor of an agreement on a lower takeover price,” says Adam Badawi, a law professor at the University of Berkeley. In addition, negotiations could be chaotic. It is therefore by no means certain that going to court is actually worthwhile.

The Tesla boss cites a lack of information

Musk had his lawyers explain on Friday that he was no longer sticking to his intention to buy. The reason given was that Twitter had violated an agreement. The company did not provide him with enough information to substantiate that less than five percent of active Twitter users are spam or fake accounts.



Twitter had stuck to that estimate, but also thinks it’s possible the number is higher. Musk had explained that false information on Twitter about the number of spam accounts could constitute a “material adverse effect” (MAE). This enables him to withdraw from the deal according to the terms of the contract.

However, experts say Delaware courts would view MAEs as dramatic, unexpected events that harm a company in the long term. Contracts like the one between Musk and Twitter are designed in such a way that the buyer has only been proven right once in such legal disputes. It was about the German healthcare group Fresenius Kabi, which had resigned from the purchase of the US company Akorn in 2018.



At that time, a court found that Akorn’s assurances to Fresenius that Akorn had complied with its regulatory obligations were incorrect. In addition, according to the judge, Akorn had withheld facts about a deterioration in his situation.

It depends on the seriousness of the offence

Inaccurate spam account counts for Twitter shouldn’t be expected to be as serious a crime as Akorn’s problems, experts say. “If it goes to court, there is a high probability that Musk will have to prove that the spam account numbers were not only wrong, but that they were so wrong that they will have a significant impact on Twitter’s future revenue,” said Ann Lipton, vice president -Dean of Research at Tulane Law School.

Musk has also said Twitter violated agreements by firing two senior employees without his consent. “That’s probably the only point that will stand,” says Brian Quinn, a professor at Boston College Law School. However, he doubts that the layoffs are serious enough to affect Twitter’s business.

In most cases, the courts rule in favor of the companies that should be bought. They then order the buyers to close their deals. That was the case in 2001. At that time, the largest chicken processor in the United States, Tyson Foods, no longer wanted to buy the largest meat packer, IBP. However, a judge ruled that the deal had to go ahead.

In such cases, comparisons are often made

However, many companies opt for an amicable settlement with the buyer. In doing so, they want to avoid an uncertain future for the company that can weigh on employees, customers and suppliers. This is what happened in 2020 when the US jeweler Tiffany was taken over by the French luxury group LVMH.

LVMH initially wanted to get out again. In the end he took over Tiffany; however, the price was reduced by $425 million to $15.8 billion. In another case, Simon Property Group, the largest shopping center operator in the United States, reduced its purchase price for a stake in rival Taubman Centers by 18 percent to $2.65 billion.

However, some cases also end without being taken over; but then with a compensation payment. For example, in the case of the medical technology company Channel Medsystems, which sued the company Boston Scientific because it wanted to get out of a $275 million takeover. A judge awarded Channel Medsystems an undisclosed amount in 2019.

  • A commentary by Roland Lindner, New York

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As far as is known, there is also such an agreement between Musk and Twitter. Musk would have to pay $1 billion if he backed out of the deal. Musk is citing a breach of contract by Twitter for canceling the takeover.

However, observers had suspected for a long time that the Tesla boss no longer wanted to pay the agreed $ 54.20 per Twitter share in view of the decline in technology shares on the stock exchanges. After the deal was canceled on Friday evening, the papers, which had been weakening for weeks, fell by almost eight percent to $34.05.

Tags: dollarElon MuskReutersTeslaTom HalsTwitterUniversity of Berkeley

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