Wall Street Breakfast: See You In Court!

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Wall Street Breakfast: See You In Court!
Wall Street Breakfast: See You In Court!

The Elon MuskTwitter saga kicked into high gear this weekend after the world’s richest man decided to pull the plug on his $44B acquisition.

 

Stepping away from the deal will not be easy, with both sides lining up their legal teams as they prepare for battle. Twitter  has hired merger law firm heavyweight Wachtell, Lipton, Rosen & Katz, while Musk has brought in Quinn Emanuel Urquhart & Sullivan, which successfully led his defense against the “pedo guy” defamation suit in 2019 and is part of an ongoing shareholder case over his “go-private” tweet a year earlier.

 

Fine print: At issue is Elon’s belief that Twitter  hasn’t done enough to address the matter of fake, spam or bot accounts on its platform. In a filing with the SEC, representatives for Musk said that despite what it claimed, Twitter  “appears to have made false and misleading representations upon which Mr. Musk relied when entering into the merger agreement.” With regards to Elon’s requests for clarity around the bot issue, Twitter  has “rejected them for reasons that appear to be unjustified, and sometimes claimed to comply while giving Mr. Musk incomplete or unusable information [that less than 5% of its total user accounts were spam].”

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“This is a disaster scenario for Twitter and its board,” noted Wedbush Securities analyst Dan Ives. “Now, the company will battle Musk in an elongated court battle to recoup the deal and/or the breakup fee of $1B, at a minimum.” Twitter shares slumped another 7% in premarket trade on Monday to around $34, or 37% lower than the $54.20 per share price of Musk’s original buyout agreement in April.

Questions remain: While things head to the courtroom, there is bound to be many settlement talks that take place in the background. Will Musk shoot to get a lower price for the deal based on a “material adverse effect”? Walk away by only paying a termination fee or damages? And how much hardball will Twitter be willing to play to uphold “specific-performance” clauses, which forces Musk to close the deal with every closing condition including financing of the transaction?