Will Elon Musk be able to delete his tweet to buy Twitter?
This story may appear simple. Elon Musk, the richest man in the world offered to buy Twitter, Twitter accepted. Musk has changed his mind, Twitter has not.
Musk and Twitter will now go to court to determine if ending the deal would be fair or what Musk will need to show or pay to end the deal. Twitter asked it be done soon. Musk asked that it be delayed to allow his team to gather the evidence to explain why he no longer wants to buy the company.
Twitter successfully applied that the court date consider the matter urgently and so it has been set down to be heard by the Court of Chancery in October 2022.
You may be forgiven for thinking it is a court for those wishing to take a chance, but more on that later.
Musk was due to pay Twitter shareholders $54.20 to take control of the company, he would buy as many shares as he needed to form a private company with the maximum allowed number of shareholders for the purpose of ensuring Twitter could operate as a platform for free speech and not be subject to market forces and advertisers that wish to limit that.
This came after he bought public shares to increase his ownership to about 10% and made him the largest shareholder. Twitter was mindful of what he might do next and offered him a seat on the board.
Musk opted to not take the board seat and instead offered to buy the company. Twitter initially tried to resist the purchase using what is known as a poison pill to discourage him from trying to buy more shares.
The share price jumped from about $40 to $50 but after his offer to pay $54.20 and waive any conditions or requirements, the Twitter board agreed and offered it to shareholders that also agreed. This was in April.
The deal was due to happen. The finance was arranged and Musk was keen to begin discussing plans to move ahead.
I imagine he was advised that it was not a good deal and he knew it would not be a good financial deal, but either his advisers began to convince him or the slide in the stock market from May convinced him that he would have to risk a lot more of his Tesla stock to pay a premium on Twitter stock that had fallen back below $40.
He had said that one of the issues he would like to address was the spam bots. With over 80 million followers at the time, his account would have had many postings at him and trying to trick those who did engage with him to buy dodgy crypto deals, so it was understandable that Twitter’s view that only 5% of accounts were bots seemed unlikely.
He requested access to the data to determine if the number was true, but it is not easy to analyse over 250 million users (real or fake) posts that run to billions each day to determine which are real or not.
Things escalated with Musk posting comments that would suggest it would not be a happy buyout, but on the 8th of July he submitted a formal withdrawal of his offer.
Twitter did not accept it and approached a court that specialises in settling commercial related matters.
The Court of Chancery
If a business is registered there but does not operate there, there is no corporate income tax.
There are over 1,6 million companies registered in the state and includes the likes of Google, Amazon, Tesla, Disney and Twitter yet it has a population of less than a million.
The other big reason to register your business in Delaware is access to the Corporation court known as the Court of Chancery. Unlike the typical US criminal and civil courts which use juries and typically take a long time to bring cases to court.
The Court of Chancery uses judges that have specialised in corporate law and do not use juries. They are able to hear and decide cases more quickly. The decisions can be challenged in higher courts but succeeding where a specialist judge has ruled is not easy.
The court has operated for over 200 years and is currently headed by Kathleen McCormick, the first woman to be appointed as Chancellor, she was formally the vice chancellor and serves on a 9 judge bench that has five females serving on it. She made her ruling to hear the case in October on 19 July while being ill with Covid-19.
Usually the court will compel a business that makes an offer to follow through with it to avoid businesses making frivolous offers. They might not compel two businesses that will not be a good fit from having to merge, opting to have them use the breach clauses to settle for damages.
It looks like Twitter will be affected negatively if Musk is allowed to walk away and that it will not be easy for Musk to show that the potential bot numbers and how much they differ with what Twitter claimed will justify his ability to end the deal.
It may be possible for Twitter and Musk to find an alternative which may be a payment to shareholders to settle and end the agreement. There certainly will be a lot of speculation until the case is settled and it will likely become a major precedent should something similar happen.
Musk was successful in a case which challenged Tesla’s acquisition of SolarCity. The court found that Tesla paid a fair price, but did note that Musk's involvement was not ideal either.
Now we wait to see how this all plays out.
#BusinessUnusual with @brucebusiness and @colincullis on where we are now that @elonmusk no longer wants to buy @Twitter - a simple but complex story about influence and Delaware's Court of Chancery. Tune in at 7pm. Do you think he will— 702 (@Radio702) July 20, 2022
This article first appeared on 702 : Will Elon Musk be able to delete his tweet to buy Twitter?
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