It’s official: Elon Musk and Twitter will head to court in October to determine whether the billionaire can wiggle out of his $44 billion bid to buy the influential social media company.
The date, set by a judge in a Delaware court on Tuesday, is part of a broader ruling that suggests Twitter may have the upper hand in its continuing will-he-or-won’t-he drama with Musk, the world’s richest man, several legal experts told Grid.
Musk had sought to delay any trial until February 2023, opposing Twitter’s bid for a much faster trial. And the billionaire has tried to frame his case for ending the deal around concerns over the prevalence of spam bots on Twitter — rather than the nuts and bolts of his merger agreement with the company.
Tuesday’s ruling is a sign that the judge in Delaware’s Court of Chancery, which regularly handles major disputes over merger agreements involving millions or billions of dollars, is treating Musk’s deal with Twitter like a standard merger case, characterizing it as a “busted deal.” The billionaire inked the agreement in April after buying roughly 9 percent of the company’s stock.
“There’s been questions about whether the court would believe [Musk] that the spam issue, and this isn’t novel, required a whole lot of extra time,” said Ann Lipton, associate professor of business law and entrepreneurship law at Tulane University. “And so what she made clear is, ‘No, I’m going to treat this like any other merger case.’ And that is the point because if you treat it like any other merger case, it does not look good for Musk.”
Judge to Musk: Full speed ahead
Brian Quinn, an associate professor at Boston College Law School who focuses on mergers and acquisitions, said the bar that Twitter had to meet for an expedited case was reasonably low, and it had to argue that there’s an irreparable injury to the company — which Twitter did. If the court hadn’t granted an accelerated trial time frame, it would’ve placed the case on a slower path, creating further financial uncertainty for Twitter and its shareholders.
“This was the kind of hearing where Twitter can’t win, but they could certainly have lost,” said Quinn. “And so this I put in the category of wins for Twitter, not on the merits, obviously, but on the small important wins that they need to have.”
Twitter had sought a four-day trial beginning in September, versus Musk’s desire for a longer trial beginning in February 2023. In the end, the Delaware judge set a five-day trial in October.
The hard rock of the law
Musk’s case is unique in the sense that it has garnered extensive media coverage and people have hung on his every tweet, searching for some meaning. In its filing against Musk, for example, Twitter explicitly noted that Musk tweeted a “poop” emoji at the company’s CEO, calling it “derogatory.”
But while Musk’s antics can shape the court of public opinion, Lipton said Tuesday’s ruling suggests the chancery court isn’t swayed by such behavior and may see it as a strike against Musk.
“From everything that we’ve seen publicly and withholding the possibility that there’s private information that we don’t have yet, Musk’s claims are legally weak,” said Lipton. “If you have legally weak claims, going to trial now means you lose.” The judge also noted that Twitter is seeking to force Musk to proceed with the deal under the terms of the contract — what is legally known as “specific performance” — and that allowing Musk to pay damages to break the deal may not be enough to remedy the harms Twitter has suffered as a result of the deal souring. Twitter has seen numerous senior-level employees leave the company, frozen hiring and watched its stock price slide as the deal became more contentious.
Legal experts said that it had not been clear whether the Delaware court would treat this case as a standard merger disagreement, given the size of the entities involved and the unusual nature of the deal.
That is no longer a major question, Lipton said: “This is a hint that [the judge] doesn’t care that it’s Twitter and Elon Musk — a deal is a deal.”
What’s next for Elon?
The ruling does not guarantee that the case will actually go to trial in October, however.
Musk may attempt to renegotiate the terms of the agreement in the coming months to close at a lower price, Quinn said, but called it unlikely. The billionaire might also seek a settlement with Twitter that permits him to walk away if he offers a significant amount of money to do so. That number would likely have to be much larger than the $1 billion termination fee that is in the merger agreement.
“Alternatively, he could take his chances and stay in court,” said Quinn. “Who knows, he might win. But if he loses, he faces the prospect of having to buy the company he has been dumping on for two months at $54.20″ a share. (Twitter’s current share price is $39.67 and rose after the ruling on Tuesday.)
Twitter may also come to favor a settlement to end the drama faster while recouping some of its losses, said Marcia Weldon, a law professor at the University of Miami School of Law.
“A settlement could stabilize the share price for both Twitter and Tesla, which would also benefit Musk personally given his large personal stake in both companies,” said Weldon.
Thanks to Lillian Barkley for copy editing this article.