Ms. Lipton, you are tweeting a lot about Elon Musk and Twitter at the moment. What makes the case so exciting?
I don’t know of any professor and lawyer who deals with corporate law and isn’t fascinated. But that mainly has to do with the parties involved: a prominent company like Twitter and a colorful personality like Elon Musk with a very unique negotiating style. From a purely legal point of view, this is not an unusual case in many respects.
What do you mean by that?
It was like very often with an unsolicited takeover bid. Twitter’s board of directors checked it out, first blocked it with a poison pill, but then agreed to a sale, and what came out is quite a standard contract.
And it is precisely this agreement that Musk now wants to tear up. . .
Yes, but none of the reasons he gives come close to being sufficient to be able to do that. If that’s all he has, he lacks the legal basis to get out of the contract. That’s not even debatable. He should already be pulling a rabbit out of the hat in the legal dispute.
Musk argues that Twitter may underestimate the number of “spam” or “fake” accounts. So that doesn’t convince you?
Of course, I don’t know what he has up his sleeve, but so far he hasn’t produced any evidence that would suffice as a basis for rescinding the contract. However, it is not yet clear what the court would do.
What are the options if Twitter now goes to court as announced?
In principle, a contractual penalty of one billion dollars has been agreed if the takeover fails. But the agreement includes a so-called “specific performance” clause that can force Musk to complete the acquisition at the negotiated price, which is $44 billion, or $54.20 per share. And courts in Delaware, where this case would end up, have done so in the past when buyers wanted to back out.
But never in such a spectacular case. . .
True, there has never been a case of this magnitude and importance, and the court has many things to consider. The decision will have enormous consequences for the company, its employees, its users and society as a whole. The court can force Musk to buy with a “specific performance” order, but if he doesn’t, he could face a $1 billion fine at worst. It wouldn’t be for him, and it wouldn’t be much given the chaos he’s wrecked on Twitter.
Musk has often shown little respect for laws and regulators. Is it conceivable that he would simply refuse to buy Twitter, even if the court ordered him to?
There is such speculation. Musk could simply say, “I’m the richest person in the world, send an army on me.” But I think that’s unlikely. Musk runs a public company as CEO of Tesla, and you can’t mess with a Delaware court in that position. If ordered to take over Twitter, he will. But of course he can drag it out, he may appeal and go through several instances.
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