Just times immediately after Elon Musk declared that he was in search of to terminate his deal to purchase Twitter, the social-media firm filed a 62-website page lawsuit versus Musk, boasting he was in violation of his agreement and was legally sure to purchase the business. (Musk responded on Twitter: “Oh the irony lol.”) Musk experienced claimed that the company withheld information and facts about the range of spam bots, or bogus accounts, on its system. Twitter argued that Musk is making flimsy excuses to walk away from a deal since both equally his web really worth and the worth of Twitter have plunged considering that April.
Twitter’s lawsuit is an incredible and odd document. It paints Musk as a dishonest and unserious hypocrite, the kind of man or woman you would never ever want functioning your company. But for the reason that this same dishonest and unserious hypocrite has signed a document featuring to pay out a enormous premium to shareholders, Twitter’s board is bound by its fiduciary responsibility to implement a merger neither Musk nor Twitter’s workforce feel to want. It is an awfully bizarre twist to the relationship-plot genre: I despise your guts, now marry me! This is shareholder capitalism as romantic comedy.
To fully grasp the scenario a little better, I reached out to Brian JM Quinn, a professor at Boston College Law College whose investigate focuses on company law and mergers and acquisitions.
Our dialogue, which you can also pay attention to on my podcast Plain English, has been edited for brevity and clarity.
Derek Thompson: How widespread is it in mergers like this to have a single occasion get chilly feet and consider to back out?
Brian JM Quinn: This is not uncommon. Leaving out the personalities for the time remaining, this is a prevalent situation. Someone purchases a business. The following month, it seems to be like they overpaid for it. The purchaser calls a lawyer: Is there any way that you can get me out of this? That transpires a great deal.
Thompson: How unusual is Elon Musk’s habits?
Quinn: It’s definitely odd. The general public-disclosure provision of the initial merger deal is generally never ever negotiated. But listed here, and I was shocked, they look to have additional a sentence in Section 6.8 guarding Musk’s means to tweet. Besides he was not permitted to disparage “Twitter or its associates.”
And then he proceeded to use that ability to tweet poop emojis about Twitter and criticize the corporation and its executives. That is just quite strange. The legal professionals who wrote the Twitter lawsuit will have to have had a truly fantastic time, due to the fact they employed Musk’s tweets from him, hoisting him on his personal petard, around and around. Just about every one a single of those people tweets is a doable violation of the disparagement provision. And now Musk is in breach of the deal, Twitter states, which indicates he just cannot just take advantage of termination provisions.
Thompson: And it wasn’t just obscure poop emojis. Musk tweeted about Twitter’s alleged still left-wing bias and identified as out Twitter’s banning of the New York Submit as currently being “obviously very inappropriate.”
Quinn: It is quite damaging for Musk that he’s possibly furnished evidence of currently being in violation of the deal. If you have unclean arms, if you have carried out the wrong factor, you just cannot race to the contract and search for the protections of the contract. If you want to avail by yourself to the conditions and protections of the deal, you can’t have abused it.
Thompson: Let us consider Musk’s promises very seriously for a 2nd. What is he professing, and what is his very best circumstance for acquiring out of this deal?
Quinn: Elon Musk and his legal professionals make 3 claims. Very first, they claim that Twitter isn’t becoming straightforward about the variety of bots. That’s a quite flimsy pretext. Next, they claim that Twitter is not disclosing ample facts about the bots, which also appears to be like a challenging argument to make in court.
Thompson: On April 21, Musk tweeted that he was going to go just after Twitter’s bots or “die trying.” I’m not a lawyer, but this is very baffling to me. Musk can assert he would like to buy Twitter to thoroughly clean up all the bots. Or he can assert that he does not want to buy Twitter, simply because there are a lot of bots. But you can’t actually say the two items in the span of three months.
Quinn: Unquestionably. He was tweeting about the bots in advance of they signed the merger agreement. Which is evidence that he realized there was a bot issue! He was centered on it. So when he now suggests, “Oh Jeez, I simply cannot believe that there are so several bots,” it’s absurd. It is seriously absurd.
Thompson: Truly a maximal case in point of “Never tweet.”
Quinn: Or text! The complaint discusses text messages in between Twitter and Musk where a Twitter govt asks, generally, “Should we purge the procedure of bots?” and Musk’s response is, in essence, “Not nevertheless wait till it is a private organization, mainly because it’ll look superior.” These are his have texts! If I were his lawyer, I’d stroll absent. Musk is a nightmare shopper.
Thompson: Tell me about Musk’s third claim.
Quinn: The 3rd argument that he created was that Twitter was no extended working in the everyday program of business. The organization had allow go of a bunch of people today, which includes 30 per cent of its expertise-acquisition team, and numerous superior-stage men and women resigned.
This is the form of argument that has gained in courtroom right before. I’ll give you an example. The recent circumstance AB Steady v. Mirae associated a transaction exactly where a company was buying a luxurious-lodge chain. They signed an agreement just ahead of the pandemic. Then March 2020 rolled all over and all of a sudden, it looked like a lodge chain was a negative financial investment. And so the purchaser tried to wander away from the deal simply because the hotel group had stopped taking reservations. There have been no persons in the resort. And the courtroom appeared at this and reported, indeed, COVID has been quite horrible, but the lodge chain had an obligation to run the small business in “ordinary course.” If you are not taking reservations, you’ve adjusted the operation of your business enterprise. So they permitted the consumer to walk absent.
Thompson: So this initially appears to be like Musk’s strongest circumstance. How did Twitter answer?
Quinn: They took it head-on. They declare they despatched notices to Musk and his workforce expressing that they were likely to enable these people go, and Musk and his team didn’t say just about anything. They claimed they named Musk up on two individual instances and instructed him they preferred to do an employee-retention application to build incentives for persons to keep at the organization until finally the closing. And Musk reportedly claimed he didn’t care. Furthermore, at the all-fingers conference, Musk claimed that given that expenses have been exceeding revenues, he was not opposed to getting rid of persons to naturally downsize the organization. When you insert it up, it looks like Musk was not involved about people leaving the company.
Thompson: Give me your typical impression of the Twitter lawsuit. What do you think Twitter is really trying to achieve below?
Quinn: Twitter puts alone in the greatest placement of leverage with that lawsuit to acquire in courtroom, or to get Musk to the negotiating desk to extract a massive settlement before he goes on his merry way. The strongest argument is the framing of the grievance. They frame the complaint as 1 of buyer’s regret: Musk realized he manufactured a mistake and is wanting for an exit.
Thompson: What ought to we know about the Delaware Court of Chancery, wherever this is all headed?
Quinn: The Delaware courtroom hears disputes between the greatest corporations in the globe, represented by the most sophisticated counsel, with the most considerable investors on Wall Road. When they clearly show up in court with a contract, the court docket presumes that when they signed that agreement, they intended it. They are not likely to permit events to just stroll absent from specials. Musk is a major boy, and this courtroom treats these get-togethers like large boys and women. When they make issues, they have to take in their faults. We’re not conversing about you likely into the mall and purchasing a new cellphone and the firm fingers you a 25-webpage contract you just cannot read through, and you indicator it and are shocked by what it says. These parties pay back their attorneys $1,000 an hour or far more so that they know specifically what every single contract says.
Thompson: How does this close?
Quinn: The Twitter board would like to do the deal. For the reason that the best detail for their stockholders is to get the $54 a share. But if they can’t get that, $50 a share is very good, as well. If Musk suggests $36, that could possibly be also big a delta.
But the other issue that could happen is Twitter states, You don’t want to purchase us, and we really don’t want you to get us, possibly. Musk made available to invest in Twitter for $54 a share. Now Twitter is buying and selling all over $35 a share. Possibly Twitter says, Give us $20 a share, and you can stroll away with almost nothing. Which is the beginning of a authentic negotiation.
Thompson: What if the courtroom orders Musk to fork out up and he just suggests no?
Quinn: Delaware lives and dies by corporate regulation. If Delaware is not able to implement an purchase, Delaware goes out of enterprise. So enforcing an get is of the optimum priority for a Delaware court docket. Delaware has a sequestration statute that permits a judge in the Chancery Court to get the seizure of a party’s belongings in order to secure their visual appearance in court. Tesla is integrated in Delaware. So, in theory a courtroom could seize Tesla shares in get to compel Musk. A Delaware court will not be pushed all over by Elon Musk.