How Does Twitter's Legal Battle Against Elon Musk End?

Here are the most likely outcomes of Twitter's lawsuit seeking to force Musk to go through with his $44 billion deal to buy the social media company.

Elon Musk and Twitter are heading to court Tuesday.

The social media platform sued Musk last week after the Tesla and SpaceX CEO pulled out of his $44 billion agreement to buy the company.

“Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he — unlike every other party subject to Delaware contract law — is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” the lawsuit alleged.

Musk claimed Twitter breached the sale agreement and failed to turn over details about spam accounts on the platform.

Twitter on Monday called for a speedy trial and accused Musk of trying to “slow walk” the lawsuit after he urged a February trial, which would jeopardize financing for the purchase.

A 90-minute hearing is set to take place Tuesday to consider Twitter’s request for a trial to start in September, according to Reuters.

Here are some possible outcomes of that hearing and the Twitter deal as the case heats up:

Tuesday’s Court Date Sets The Stage

Tuesday’s Delaware Chancery Court hearing will not decide the lawsuit, but it is still meaningful and “will set the tone in important ways,” Bloomberg’s Mark Levine explained in his column on Monday.

If the judge sees validity to Twitter’s argument that this is a straightforward contract dispute, a September trial is more likely.

But if the judge sees merit to Musk’s argument about spam bot accounts and decides there needs to be a deeper dive into Twitter’s metrics, that would most likely delay the trial until 2023.

“That will be very good for Musk: the delay, but also the focus on bot-counting,” Levine said.


One of the most likely outcomes would be for the two sides to agree to a settlement. This could mean that Musk would pay a fee to Twitter and walk away from the deal.

This is what Scott Galloway, a professor at NYU’s Stern School of Business, anticipates will happen.

“I think the settlement is going to be legendary here,” Galloway told CNN’s “Smerconish” on Saturday. “The characters here and the size is novel, but the actual legal disagreement here is pretty plain vanilla. And there’s a lot of precedent for this sort of contractual case.”

Tech journalist Kara Swisher, Galloway’s co-host on New York magazine’s “Pivot” podcast, said she also believes the two sides will reach an early settlement.

“I don’t think they want this to go into court by any means at all. It’s not good for anybody, even if it’s bad for Elon,” Swisher said last week.

Musk Buys Twitter, But At A Lower Price

Musk agreed to buy Twitter for $54.20 per share in April. But at the moment, Twitter shares are a lot lower, closing at $38.41 on Monday. The original deal price is no longer a good one for Musk.

Brian JM Quinn, a professor at Boston College Law School, told The Atlantic that Twitter could agree to a lower purchase price.

“The Twitter board would like to do the deal. Because the best thing for their stockholders is to get the $54 a share. But if they can’t get that, $50 a share is good, too. If Musk says $36, that might be too big a delta,” Quinn said.

Galloway said he doesn’t believe Musk is angling for a lower price, but simply wants to exit the deal altogether.

“This has clearly gone from sort of an irrational deal to an insane deal,” Galloway told CNN.

Twitter Wins, Musk Is Ordered To Pay The Termination Fee

As part of the original agreement, Twitter and Musk agreed to a $1 billion termination fee, paid by whichever side pulled out. The deal also included a specific performance provision allowing parties to seek court enforcement of the agreement, as long as the financing holds.

That means there’s a chance the court could rule Musk violated the deal, but without forcing him to buy the company.

“If the court feels that that remedy is unworkable or otherwise inappropriate, it could order Musk to pay the $1 billion termination fee,” Larry Hamermesh, a professor at the University of Pennsylvania’s Carey School of Law, told Fortune.

Puck’s William D. Cohan wrote that the $1 billion fee “no longer seems viable, or in play legally,” and believes both sides would be better off settling for an amount higher than the termination fee that doesn’t have a meaningfully detrimental effect on Musk’s finances.

Twitter Wins, Musk Is Ordered To Buy The Company

Under the specific performance clause, the Delaware court could issue an injunction forcing Musk to go through with the previously agreed deal.

Cohan told CNN’s “Quest Means Business” that outcome would be “unprecedented.”

“Musk does not want a judgment against him forcing him to buy the company, which would be kind of unprecedented given the size here,” Cohan said.

Michele Williams, assistant professor of management and entrepreneurship at the University of Iowa, told Wired it is unlikely Twitter wants Musk to buy the company now.

“They are not in any way negotiating for implementation,” Williams said. “After this sale goes through, they have to work together — and they have not created on either side a situation that will make that easy.”

Musk’s Financing Falls Apart, Voiding The Specific Performance Clause

The agreement’s specific performance clause stands as long as the financing remains in place.

In order to buy Twitter, Musk secured some money from lenders, including banks. If that financing is withdrawn, Musk could no longer be forced to complete the purchase and would only have to pay the termination fee, as Eric Talley, a professor at Columbia Law School, explained to Fortune.

“The specific performance provision falls away and what we’re left with is the damages that are specified in the contract,” Talley said, although Twitter’s lawyers would likely investigate how lenders came to their decision.

Musk “is under his own obligations in the contract not to try to sabotage the deal himself,” Talley continued.

Musk Wins The Spam Bot Battle

Musk explains his reasoning for walking away from the deal with three key concerns laid out in a regulatory filing, Quinn said in an interview with The Atlantic. The first two are consistent with Musk’s previous protests about spam bot accounts on the social media site: He accused Twitter of lying about the number of spam bot accounts and said the company is not offering enough information about those accounts.

However, it is unclear whether either of those concerns could hold up to scrutiny in court.

Musk would have to prove that Twitter’s filings included false statements that would have a “material adverse effect” on the company itself. But his purchase agreement isn’t contingent on the amount of spam bots.

Twitter has repeatedly said its estimates show that spam accounts represent less than 5% of monetizable daily active users. And, as Bloomberg’s Levine pointed out, Twitter’s Security and Exchange Commission filings explicitly say that the actual figure on bots could be higher.

“In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated,” Twitter wrote in its filings.

Because Twitter never promised Musk the spam bot figure was definitively below 5%, “it is much harder for Musk to make any argument at all that he can get out of his deal,” Levine argued.

Musk Wins Due To Twitter Staff Changes

Musk’s lawyers also said Twitter violated a deal provision to “preserve substantially intact the material components of its current business organization.” They specifically mention the company fired two top executives, received resignations of three others, laid off members of its talent acquisition team and announced a hiring freeze, according to a filing.

Quinn said this claim is Musk’s strongest and has succeeded in court before.

But Morningstar analyst Ali Mogharabi told The Associated Press the company could argue layoffs and turnover are consistent with “an ordinary course of business” in a turbulent economy.

“Many technology firms have begun to control costs by reducing headcount and/or delaying adding employees,” Mogharabi told AP. “The resignations of Twitter employees cannot with certainty be attributed to any change in how Twitter has operated since Musk’s offer was accepted by the board and shareholders.”

Quinn said Musk himself may have violated a clause of the agreement not to “disparage Twitter or its representatives.” For instance, after Twitter’s CEO Parag Agrawal posted a tweet explaining spam bot accounts on the platform, Musk replied with a poop emoji.

“It’s very damaging for Musk that he’s potentially provided evidence of being in violation of the contract,” Quinn told The Atlantic. “If you have unclean hands, if you’ve done the wrong thing, you can’t race to the contract and seek the protections of the contract.”

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