Elon Musk could be forced by a US court to complete his $44 billion takeover of Twitter despite calling off the transaction, legal experts say.
The Tesla boss told Twitter on Friday that he was ending the deal, citing concerns about the number of spam accounts on the social media platform.
Twitter Chairman Bret Taylor responded with a tweet declaring that the company intends to “take legal action to enforce the merger agreement.”
A legal expert said he expects Twitter to file a lawsuit in Delaware, the US state responsible for the deal, as early as Monday.
“They will likely seek a declaratory judgment that they are not in breach of contract. They will also seek an order from the court that Musk expressly perform his obligations under the agreement,” said Brian Quinn, an associate professor at Boston College Law School.
Under the terms of the agreement, the company can ask a judge for a “specific performance” that would compel Musk to buy the company for the $54.20 per share he agreed to in April. Alternatively, the company could seek $1 billion in compensation from Musk if it backs out of the deal in violation of the agreement.
Quinn said Musk’s arguments are likely to fail in court. In Friday’s letter, Musk made three general arguments: that Twitter violated the agreement by not providing enough information about spam accounts; that Twitter misrepresented the number of spam accounts in its disclosures to the US Financial Services Commission; and that the company violated the agreement by failing to consult with Musk when it recently fired senior executives.
Quinn said Musk’s requests for information about spam accounts were not “reasonable” and would not be accepted by the court. “He cannot use inappropriate requests for information to create a pretext to claim infringement,” he said.
John Coffee, a law professor at Columbia University, said, “Musk has a very weak legal basis. Twitter seems to have given him access to pretty much everything to satisfy his desire to know the percentage of bots among his users.”
Carl Tobias, Williams Chair in Law at the University of Richmond, said: “Musk’s filing does not appear to give him a strong legal basis to withdraw from the transaction. His attorney has only made allegations and arguments in support of Musk’s position, and the judges would have to decide whether the evidence Musk would present is compelling enough to support ending the deal.”
However, Tobias added that instead of getting into a situation where Musk is forced to buy a company he no longer wants, both sides could agree on a settlement. Analysts have warned that a protracted legal battle could further damage Twitter’s stock price and morale. A comparison with Musk would draw a line under the affair.
“Most similar disputes usually end with settlements that allow plaintiffs and defendants to save face,” Tobias said.
Analysts have also speculated that Musk could use the legal battle to negotiate a lower price for Twitter, although investors are also expected to consider legal action if the deal doesn’t go through at $54.20 per share, and the Difference between the selling price and the sue current stock price. Twitter is currently trading at $36.81 per share.
“I doubt the court will rule before a deal is reached, and Twitter’s daily price will give you an idea of what Musk’s side hopes to pay,” Coffee said.