Musk Suggested Twitter Deal Was on Hold. Law Expert Says It’s Not So Easy
May 15, 2022
It appears Elon Musk has thrown a wrench into his own deal for Twitter on Friday, but an expert in corporate law and mergers and acquisitions says that walking away is not as simple as paying a $1 billion breakup fee for him.
Musk said he was temporarily halting his acquisition of the platform while details were compiled on how many fake Twitter accounts there were. Earlier this month, a report revealed that more than 5% of monetizable daily active users were fake or spam accounts. Musk's clarification followed the post: "Still committed to acquisition."
Musk's tweets were not responded to by Twitter. Tesla declined to comment on Musk's comments. In order to get out of this deal, Musk should be able to prove that information about bots and the way Twitter disclosed their presence among its user counts adversely affected the company, according to Brian Quinn, a professor at Boston College Law School.
"Generally, these types of claims aren't very convincing," Quinn notes. "There's a lot of bravado, a lot of back and forth, but they're not very strong. Sometimes people renegotiate prices, but not by a great deal."
Musk's comments come as technology stocks have fallen heavily, and Twitter likely would have fallen as well if no deal had been reached for $54.20. Quinn says that though potential acquirers often find they have buyer's remorse when they sign a merger agreement shortly before the market slumps, it doesn't matter because of the way the merger agreement is structured. Twitter may instead take Musk to court if Musk walks away instead of settling for one billion dollars as a breakup fee.
If Twitter can prove that Musk's funding is still in place, a Delaware court could order Musk to close the merger if a specific performance order is issued, Quinn says.
"The Delaware court that will be evaluating this merger agreement will issue an order for specific performance if it is feasible for the merger to go forward," Quinn says. "Whether Musk agrees or not, they will get the order and they’ll force him to close."
There is still skepticism among merger arbitrage traders. The Twitter stock declined 9.5% on Friday. At $40.80, shares are down 25% from Musk's agreed-upon deal price, indicating traders do not believe a deal is a sure thing, at least not at $54.20.