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A Delaware Chancery Court judge recently allowed Twitter to expedite its lawsuit against Elon Musk, a blow to the billionaire in his fight to cancel the $44 billion deal. Musk has said the number of fake and spam accounts make it impossible for him to properly analyze the business and that Twitter has misled its investors and customers. Straight Arrow News contributor Adrienne Lawrence points to some legal strategies and potential outcomes for Musk as he heads to court:
First, it seems unlikely that a Delaware court will order Musk to buy the social media platform. What Twitter seeks the court to do is known as specific performance—that is, to force someone to take a certain action, in this case it’s the purchase of Twitter. Specific performance is a rare remedy under the law because our system generally tends to be against forcing people to act in the context of civil cases. Who wants to have their car repaired by a mechanic who a court said must fix your car? It may not end well. That’s why specific performance typically isn’t awarded in civil cases unless there’s land involved, such as a unique piece of real estate to be sold. For that reason, it’s difficult to think that the Delaware courts will order Musk to buy the company. Rather, if Twitter were to prevail in its lawsuit, the court may simply require Musk’s companies pay a break-up fee and the parties go on their way. That brings me to my next point…
Second, Musk may be gambling on the possibility of the court simply forcing him to pay the break-up fee. You may be thinking “It’s one billion dollars, that’s nothing minor.” Well, the court may not necessarily order Musk & Co. to pay the full $1 billion break-up fee because these fees are intended to reflect damages suffered by the party left at the alter. Twitter would have to show that it suffered one billion dollars in damages caused by Musk’s decision to back out of the merger. On July 11th when Musk announced he was backing out of the deal, Twitter’s shares dropped 11 percent, erasing about $3.2 billion in market value. But Twitter’s shares had spiked due to Musk announcing the deal, meaning the social media giant likely is in the same place now that it was before Musk even came to the table. Given that, a Delaware court may find that Twitter’s actual damages don’t amount to a one-billion dollar fee, ultimately ordering Musk to pay less to part ways. That would be a win for him.
And third, Musk may be forcing Twitter into litigation in hopes of getting the social media platform to lower its sale price. Basically, by forcing Twitter to enter litigation, the company will have to expend considerable legal fees and time, hoping for a favorable outcome at the end of a trial. This could be a big gamble for the reasons I previously mentioned. Knowing that, Musk may offer to go through with the deal at a lower sale price, forcing Twitter to take less and be done with the uncertainty of the entire matter. When it comes to litigation, it’s all about strategy. Even though he’s the world’s richest man, Musk remains personally responsible for $33.5 billion of the $44 billion required to complete the transaction. That gives him plenty of reason to legally maneuver as he sees fit to secure the win here. Regardless of Musk’s moves and or motives, we’ll be watching whether our virtual town square becomes yet another asset of yet another billionaire.
