Twitter is not looking for a sale. Now Elon Musk does not want to buy. Cue bizarre legal drama.

Elon Muskconfrontation with

Twitter a company

TWTR -5.10%

He paved the way for what could become one of the most bizarre courtroom battles in corporate acquisition history – a rejected acquisition target who never sought to buy it would likely try to force a buyer nervous about the deal to complete it.

In just over three months, Mr. Musk aggressively pursued a takeover that first Twitter resisted, then triumphed and reneged — all the while using the same platform to ridicule and lead Twitter and drop hints about its changing intentions.

With Mr. Musk’s attempt Acquisition of $44 billion completedTwitter says it plans to take legal action. In a statement on Friday, she indicated she would file a lawsuit in Delaware Chancery Court, arguing that Mr. Musk should Close the agreed deal.

On Friday evening, he filed papers saying he wanted to get out, took aim at Twitter on several fronts and said the company had violated the merger agreement. He accused Twitter of withholding data from him to verify facts about the business and that his statements about the amount of spam on the platform represented fundamental errors of regulators. He also argued that the company was making critical changes to the normal management of the company without his consent, such as imposing hiring freezes and layoffs.

Corporate law experts say Twitter appears to be on legally sounder grounds than Musk. The filing provided no evidence to support his assertion that the estimate was an inaccurate or an alternative calculation. “This is not in the ballpark,” said Zohar Goshin, a professor of transaction law at Columbia Law School, adding that the impact on a company’s value should be so dramatic that its value will be halved, for example.

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Layoffs and hiring freezes at tech companies It has also become popular in recent weeks.

Facebook

Meta Platforms Inc. the mother Reduce hiring Mr. Musk

Tesla a company

TSLA 2.54%

Is to trim the staff.

The question remains whether it is really possible to force the eccentric billionaire –Notorious for avoiding norms Even when it is Get him into legal troubleTo buy a company he doesn’t want to own.

“What would they do if there was a judgment and he said, ‘Well, I still won’t buy it? “They have no tools to force him to continue doing so,” said Mr. Goshen. You don’t put people in jail because they’re not buying anything.”

There have been a few examples of buyers being forced to pursue purchases under the “specific performance” clause that Mr. Musk agreed to, but most of them were small deals. The concept of a court compelling a buyer to complete a transaction on such a large scale has not been tested.

Most legal clashes over strained deals end with settlements involving price cuts or a one-time payment. Mr. Musk has agreed to pay a $1 billion reverse termination fee to Twitter If the deal collapses, it has been triggered under certain scenarios including if its debt financing fails or regulators try to block the deal. Neither of them happened.

The clash pitted several white-shoe law firms against each other. People familiar with the matter said Twitter recently retained Wachtell, Lipton and Rosen & Katz, while Musk uses Skadden, Arps, Slate and Meagher & Flom LLP. Twitter is already working with Simpson Thacher & Bartlett LLP and Wilson Sonsini, while Mr. Musk’s team also includes Quinn attorneys Emanuel Urquhart & Sullivan.

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The agreement sets $1 billion in the amount Twitter can sue for damages, meaning its only options are to sue for specific performance to force it to follow, or a maximum of $1 billion. A representative for Mr. Musk declined to comment.

The standoff leaves Twitter in a precarious position, Given that its prospects as a stand-alone company are dreadful in part due to the turmoil in the digital advertising market. Twitter shares closed at $36.81 on Friday, 32% below the $54.20 share price that Musk agreed to pay.

Faced with criticism from Mr. Musk and a weak ad market, Twitter CEO Parag Agrawal is trying to prepare it for a difficult period ahead, whether it is under the ownership of Mr. Musk or not. In May, he announced a hiring freeze and belt-tightening, saying he was taking action during the acquisition because economic conditions worsened and Twitter could not assume the deal with Mr. Musk would close. Last week, staff recruitment cut.

Investors seem unconcerned about the recent turnarounds, which sent Twitter stock down 4.81% in Friday after-hours trading following Mr. Musk’s disclosure.

Twitter CEO Parag Agrawal, left, at the Sun Valley conference organized by Allen & Co. This month.


picture:

Brendan McDermid/Reuters

Musk fun

Mr. Musk’s Twitter movie kicked off with an undisclosed purchase of $22.8 million in Twitter stock on January 31. He continued to buy into February and March, building nearly 9% of the stock for $2.6 billion and becoming the single largest investor.

He has received public criticism on Twitter, and polled his followers on the site about whether it adheres to the principles of freedom of expression and Public manipulation of the idea of ​​starting a competitor. By the time his stake was announced on April 4, Musk had been secretly speaking to Twitter for nine days.

First, contact Jack DorseyMusk’s co-founder and friend, then spoke to director Egon Durban, co-CEO of private equity firm Silver Lake, another acquaintance, according to a public filing regarding the deal.

Discussions began aptly, with Mr. Musk saying he might want to join the board. Then on April 9, hours before he took the board seat that Twitter had agreed to give him, he withdrew. Four days later, he made an unsolicited takeover offer at $54.20 per share and announced the offer the next day.

Twitter initially seemed to have turned its nose up But he eventually backed out — in part because managers concluded that no one else was likely to have the interest or ability to buy the company at the price Mr. Musk had offered. The billionaire has agreed to waive detailed due diligence for Twitter’s business.

Twitter founder Jack Dorsey in 2021.


picture:

Marco Bello/AFP/Getty Images

Even as the deal neared, Mr. Musk was expressing his concerns about the bleak economic and trade outlook. In late March, Tesla was forced to temporarily close its car plant in Shanghai, the company’s largest, as China implemented anti-epidemic restrictions, steadily declining inventory. And in an earnings call on April 20, Mr. Musk spoke of rising inflationary pressures.

On May 13, Mr. Musk shocked many of the people involved in the deal with a pre-dawn tweet saying the deal was “temporarily on hold”. He later added that he remains committed to getting it done. He cited questions about Twitter’s estimate that less than 5% of the average monetizable daily users are from spam or fake accounts.

Fake accounts are definitely a concern for social media companies. But Mr. Musk has long been aware of the fake accounts on Twitter – he’s tweeted about them at least since 2018 – and Twitter’s assessment hasn’t changed in years. Mr. Musk has repeatedly said that part of his goal as an owner is, as he tweeted on April 21, “Defeat spam bots or die trying!”

The May 13 bombshell set off weeks of public and private work back and forth between Mr. Musk, Mr. Agrawal, and lawyers and advisors on both sides, according to a Friday report. After Mr. Agrawal on May 16 tweeted an explanation of the company’s spam accounting, Mr. Musk replied with an emoji, then followed up with a question: “So how do advertisers know what they’re getting for their money? This is fundamental to Twitter’s financial health.”

Mr. Musk tweeted about the latest developments, noting that if Twitter sued him, the company would have to disclose the bot information he sought in court.

Asked on Twitter on May 26 about the prospects of a recession, Musk said he expects a recession that could last 12 to 18 months. On May 24, Tesla shares hit their lowest level since June 2021, down nearly 50% from their all-time high in November. The drop led to the loss of more than $100 billion in Musk’s net worth, eroding a major asset he was using to help fund the Twitter deal.

While preparing the financing, Musk sold $8.5 billion of Tesla stock over the course of three days. After that, he said he intends not to sell any more shares. He remains the automaker’s largest investor, with a stake of about 16%, and plans to borrow against his stake. His original plan to fund Twitter included $12.5 billion in margin loans backed by shares of Tesla he owns. But Tesla’s stock price continued to declineincreasing the number of shares that Mr. Musk will have to pledge as collateral.

Giga Tesla factory in Shanghai in June.


picture:

Kelay Shane/Bloomberg News

About a month into the deal — where Tesla shares are now 37% below Mr. Musk’s agreement to buy Twitter — Mr. Musk introduced a revised financing plan that eliminated margin loans. Instead, he pledged more equity funding. Details of the financing have left questions about how Musk will extract the roughly $14 billion from his funding package that he still needs to secure himself or through outside investors.

Twitter problems

On April 21, Twitter is a competitor Snap Inc. has scared away. Investors with disappointing profits A stark warning of trouble in the digital advertising market. Soon after, Twitter withdrew all previously provided goals and forecasts with first-quarter earnings, and provided no forward-looking guidance.

On May 12, Mr. Agrawal told employees that the company would freeze hiring and cut spending.

While some Twitter employees have expressed optimism that Musk might revitalize the company, many have been Confused about their future and upset by Mr. Musk’s continued criticismthe Wall Street Journal reported.

In the month after the deal was signed, executives held more than a dozen company-wide or department-wide meetings to answer employee questions. A senior Twitter executive, in an internal note in May, He called it the “chaos tax”.

When Mr. Musk said Friday that he aimed to abandon the deal, a Twitter executive urged employees to refrain from commenting on the matter, citing planned legal action, according to a letter seen by the newspaper. This message was shared with strangers within an hour.

Twitter headquarters in San Francisco in April.


picture:

Peter DaSilva/EPA/Shutterstock

On Saturday, Mr. Musk addressed the attendees at the Allen & Co. meeting. Annual of media and technology leaders in Sun Valley, Idaho, most of whom ignore Twitter. He focused his notes on explaining how he shapes his opinions and what he enters into his conclusions.

At one point, he asked his audience how many thought the number of fake accounts on Twitter was less than 5%, an attendee said, and people seemed hesitant to raise their hand.

write to Cara Lombardo in [email protected] and Robert Wall at [email protected]

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