Twitter sued Elon Musk on Tuesday to attempt to drive him to finish his $44 billion (€43 billion) takeover, accusing the billionaire entrepreneur of “outlandish” and “unhealthy religion” actions that wreaked havoc on the platform’s operations and inventory value.
The social media firm filed swimsuit within the Delaware Courtroom of Chancery after Musk mentioned final week he was ending his buyout bidalleging Twitter failed to offer sufficient information about pretend or spam accounts on the platform.
Musk advised on Monday he was gearing up for a possible ugly authorized battle, tweeting a four-picture meme of him laughing, subsequent to sentences studying: “They mentioned I couldn’t purchase Twitter. Then they wouldn’t disclose bot data. Now they need to drive me to purchase Twitter in court docket. Now they should disclose bot data in court docket”.
The whole saga has left observers baffled by what Wedbush analyst Dan Ives described as “one of many craziest enterprise tales ever”.
So what are the potential outcomes, now that Musk needs out? Who might win the authorized battle?
Situation 1: Deal ends in a clear breakup (yeah, proper)
The deal might finish and Musk, the founder of electrical automobile firm Tesla, might pay the $1 billion (€999 million) termination charge – pocket change for the richest man on the planet.
In concept, this may be the cleanest possibility for each events.
Nonetheless, Musk is unlikely to stroll away that simply, in line with Twitter’s legal professionals and Ann Lipton, a professor of regulation at Tulane College who specialises in company litigation.
Merger agreements like this one are “designed to forestall patrons from getting chilly ft and deciding they need to stroll away,” Lipton mentioned.
Musk, who additionally heads SpaceX, has accused the social media big of “false and deceptive representations” in regards to the numbers of pretend accounts on the platformthat are key to its enterprise efficiency.
Musk’s legal professionals additionally level to latest Twitter workers layoffs and hiring freezes, which they are saying are opposite to the corporate’s obligation to proceed working usually.
These arguments could also be legitimate, however they don’t advantage pulling out of the deal, says Lipton, dismissing them as “nitpicky.”
“It’s not sufficient, except he can present that the representations (about pretend accounts) usually are not simply false, but additionally that they dramatically name the basics of the deal into query,” she explains, including it ”appears very very like Musk is legally flawed”.
“Twitter has needed to endure months of chaos over this, Twitter’s shareholders anticipated excessive value for his or her shares, and the corporate has endured public humiliation and disparagement. In different phrases, if Musk solely pays the termination charge, he’s received,” Lipton instructed Euronews Subsequent.
“The query for court docket watchers, then, isn’t just whether or not Twitter wins; it’s whether or not the court docket goes all the best way and requires Musk to shut the deal”.
Situation 2: Twitter wins in court docket, Musk buys the corporate
The arguments and proof laid out by Twitter are compelling and more likely to get a receptive ear within the Delaware court docket, which doesn’t look kindly on subtle patrons with highly-paid authorized advisers backing off of offers, mentioned Brian Quinn, a regulation professor at Boston School.
“They make a really sturdy argument that that is simply purchaser’s regret,” Quinn mentioned. “You need to eat your errors within the Delaware Chancery Courtroom. That’s going to work very favourably for Twitter”.
Morningstar analyst Ali Mogharabi famous that Twitter has described its estimate of pretend and spam accounts for years in regulatory filings whereas explicitly noting that the quantity won’t be correct given using information samples and interpretation.
Given present market circumstances, Mogharabi mentioned, Twitter might also have a stable argument that the layoffs and firings of the previous weeks symbolize “an bizarre course of enterprise”.
“Many know-how companies have begun to manage prices by lowering headcount and/or delaying including workers,” he famous. “The resignations of Twitter workers can’t with certainty be attributed to any change in how Twitter has operated since Musk’s supply was accepted by the board and shareholders”.
Quinn mentioned Twitter had numerous proof – from its communications with Musk about whether or not to retain or lay off workers, in addition to the billionaire’s personal public tweets – to reject his arguments for backing out.
“They’re marshaling a lot of Musk’s personal tweets to hoist him on his personal petard,” he mentioned.
Situation 3: Musk tries to renegotiate the value
The multi-billionaire might additionally attempt to renegotiate its takeover of Twitter at a lower cost.
This tactic has been used efficiently by the worldwide luxurious big LVMH two years in the past, when the group broke off a deal to accumulate Tiffany earlier than getting a reduction.
Nonetheless, consultants don’t see how Musk and Twitter might agree on a special value at this level, on condition that the platform’s inventory has misplaced greater than 1 / 4 of its worth since late April.
Twitter shares closed at $34.06 (€33.94) on Tuesday, up 4.3 per cent, however nonetheless far beneath the $54.20 (€54.04) that Musk agreed to pay for the corporate.
That strongly means that Wall Avenue continues to have severe doubts the deal will go ahead.
Situation 4: Twitter and Musk comply with a settlement
Authorized consultants say Twitter has a powerful authorized case in opposition to Musk, however might go for a renegotiation or settlement as a substitute of a protracted court docket combat.
“For Twitter this fiasco is a nightmare situation and can lead to an Everest-like uphill climb for Parag & Co. to navigate the myriad of challenges forward round worker turnover/morale, promoting headwinds, investor credibility across the pretend account/bot points, and host of different points abound,” in line with Ives, the Wedbush analyst.
“That is going to be a protracted and ugly court docket battle,” he added.
Any court docket proceedings are anticipated to final for months, particularly since Musk “will do every part to tug it out,” in line with Lipton.
A settlement is “at all times potential, however proper now they appear very far aside,” she instructed Euronews Subsequent.
“Twitter has a powerful authorized place and little incentive to settle,” she added. Nonetheless, “each have rather a lot to lose”.
Situation 5: Musk wins in court docket
Within the situation that Musk wins in court docket, and if he manages to show that Twitter offered him “false and deceptive” info – the principle argument in his letter addressed to the platform on Friday – and that the true particulars have a materially hostile impact on the corporate, he might stroll away with out having to pay a breakup charge.
Musk has claimed Twitter didn’t adjust to its contractual obligations after it signed the merger settlement, saying the platform didn’t present sufficient particulars or proof to point out its spam or false accounts symbolize not more than 5 per cent of all accounts, as the corporate estimates.
Musk’s legal professionals additionally argue that Twitter didn’t “search and procure consent earlier than deviating from its obligation to conduct its enterprise within the bizarre course” within the firing of a number of executives.
Nonetheless, consultants say this argument appears unlikely to find out the case a technique or one other.
Situation 6: Musk modifications his thoughts (once more)
The eccentric billionaire might even have one other change of coronary heart.
Up to now few months, Musk has repeatedly modified his thoughts: agreeing to affix Twitter’s board, then deciding to not, placing the Twitter deal “on maintain”, then revising the financing on the deal and eventually asserting he doesn’t need to purchase Twitter anymore.
“Musk doesn’t appear thinking about shopping for the corporate in any respect,” mentioned Lipton.
“Which will change as litigation unfolds and each side get a brand new understanding of the energy of their relative positions – and the court docket’s probably resolution”.
It additionally seems unlikely that one other purchaser would buy Twitter as there are not any present identified patrons thinking about proudly owning the platform.