A billionaire Elon Musk has canceled his deal to purchase Twitter. Musk says Twitter was misleading him regarding the quantity of spam or fake accounts it had on its platform, and didn’t provide him with the details he needed to be able to independently confirm its figures. Twitter says that the claims are just a lie, and the main reason Musk has decided to leave is because markets have plummeted and his wealth has dropped.
Remember that at the time Musk proposed to purchase Twitter at $54.20 per share, which is approximately $44 billion, the company had a price of $45.08 for each share. As soon as the two parties had announced the deal Twitter traded at $51.70 per share.
Then, we’re back to the present. Twitter is currently trading at $39.49 for each share. As the market has slid towards the north, Musk’s fortune is down by over $100 billion.
Remain back and prepare yourself to fight the law for the decade. You’ll be a ring announcer.
The Arena Arena
The battle is currently taking place within Delaware and the Delaware Court of Chancery, in particular. When we think of finance usually, they are thinking about New York. If lawyers are thinking of commercial disputes, they usually imagine Delaware.
It’s not an exaggeration to declare that Delaware Court of Chancery is famous for its treatment of litigious business matters. Their judges are the top in the nation and understand business concerns both inside and outside. That’s why the majority of large businesses are located within Delaware. This is largely the reason Twitter and Musk picked their choice of the Delaware Court of Chancery as the courtroom for their dispute.
In this Corner . . .
Lawyers from both sides are the heavyweight champions. Twitter has been represented by Wachtell, Lipton, Rosen & Katz which is a New York-based law firm that concentrates on, among other areas corporate governance as well as mergers and acquisitions (M&A). M&A litigation is the thing they deal with. William Savitt heads Twitter’s team.
In This Corner . . .
Musk’s legal team is made up of two formidable firms: Skadden, Arps, Slate, Meagher & Flom LLP as well as Quinn Emanuel Urquhart & Sullivan LLP. They are both well-known for in addition to M&A litigation. They also, along with Wachtell, Lipton, have an extensive knowledge of Delaware courts. In addition, (to combine analogies) their roster is lengthy and deep, their starting group includes Edward Micheletti and Andrew Rossman.
The Referee for tonight is . . . .
The Chancellor Kathaleen St. J. McCormick head Judge of the Delaware Chancery Court, has the matter. Before her appointment to the court in the year 2018 as Vice Chancellor and a partner with the Delaware law firm that concentrated on settling corporate and internal governance issues. She’s experienced and is prepared to ensure an impartial and fair trial.
Let’s get ready to rumble!
On the 12th July of 2022 Twitter began its day after filing an artfully made complaint. Even though the documents and documents are quite long however, the claims of Twitter are quite simple.
Twitter asserts that Musk violated their merger agreement, which is a contractin a variety different ways.
- Musk is constantly expressing negative comments regarding Twitter that are hurting the company’s business
- Musk has repeatedly made unreasonable and burdensome demands for confidential details and other information which he is not entitled to request.
- Musk’s claims of concern about fraud or spam are in reality just an excuse to end the agreement.
Twitter does not ask for amount of money. Instead, it wants the court to direct Musk to go ahead in the agreement and, as a result, get rid off the nonsense.
Musk hasn’t replied to the allegations at this point, but he did lay the reason he decided to end the contract in his termination letter that Twitter included in its formal complaint. Musk says Twitter isn’t providing him with the information it needs “to conduct an independent evaluation regarding the presence of fraudulent or spam accounts that are on the platform.” Musk says that the information “is necessary to guarantee Twitter’s compliance with the terms of close, in order to assist the process of Mr. Musk’s financial and financing preparation for the acquisition and also to participate in the transition planning of the company.”
We anticipate that Musk will claim that he’s not required to sign the transaction due to two key motives:
- Twitter did not disclose its total numbers of monetized active daily users (mDAUs) in its official reports in the filings that Musk used to justify why signing the agreement (as an ad-based enterprise The more the mDAUs Twitter is able to accumulate, the better its worth)
- Twitter has not provided any data Musk was looking to confirm its claim that less than 5 percent of the accounts are fake or spam.
Problems with the Case
Do you think Musk be able to evaluate independently the amount of fake or spam Twitter accounts? Twitter? This is what the judge has to make the decision.
To determine if he’s right or incorrect, Musk hasn’t said why the Twitter figure isn’t what he believes. While his lawyers said in an Delaware document filed in court that this was due to the fact that Twitter has recalculated its estimate of mDAUs shortly after signing the agreement with Musk and the restated number is different from the initial figure by just .9 percent, and businesses frequently revise their estimates in order to satisfy a range of valid motives.
Additionally in the event that Musk challenged Twitter’s claims and questioned the accuracy of Twitter’s estimates, then why did he not abstained from due diligence? We previously discussed that due diligence typically is an in-depth (and costly) procedure where the seller gives facts and figures to buyers so it can ensure the quality of the value it is paying for. Twitter believes that due diligence could have occurred prior to the agreement being reached. Musk would like to make it happen in the future.
Round One is on Twitter
Twitter demanded an experiment in September. This is less than two months from. Lawyers refer to this as “fast-tracking” an instance. Twitter stated that a quick process was necessary, considering the effect uncertainty over the agreement can have on the market for Twitter’s employees as well as its operations. Musk replied that it was impossible for the court to accelerate a case that was as difficult and data-intensive like this. Musk requested that trial be held in February. The Chancellor McCormick supported Twitter (essentially). She set the trial date in October, which is just three months from.
Reading tea leaves is usually simpler than trying to get inside someone’s head. If she’s decided to trial the case in just three months the Chancellor McCormick is likely to believe that the matter is less complicated than the Musk lawyers would like him believe. This could be a bad sign for Musk.
Who will win?
Both sides are looking forward to a win during the trial, but the likelihood of settling is higher. Our prediction (and this is all it’s just a guess) would be that the arrangement is likely to be finalized with some form of agreement, however we suspect the likelihood is that Musk will not be paying the same amount.
With that said, one thing is for certain that lawyers will have plenty of work ahead of them from now until October.
Be sure to keep an eye on us!