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Elon Musk is Being Forced to Buy Twitter



By: Bryan Zou


In April of 2022, Elon Musk struck a merger agreement with Twitter, stating that he would pay $54.20 per share to buy all of the social media platform. After having some difficulty cooperating with Twitter, and finding some of its claims allegedly false, Musk wants to back out of the agreement. Twitter, on the other hand, knows that the deal is their best option, and is planning to sue, forcing Musk to buy Twitter.


In their agreement, Musk agreed to pay $54.20 instead of the $70 that was market price, which seems absurdly cheap. Even then, $54.20 per share clocks in at about $44 bn. Musk knew that the price of tech stocks would go down due to the pandemic, so he bargained and got the deal. Right now, the price per share has dropped to just around $37. Musk’s deal is Twitter’s best option by far.


The deal had a few clauses. A merger agreement is one where the governing bodies, in this case Musk and the Twitter Board, will merge to run Twitter. The deal states that if a party breaks the agreement, then they must pay the other $1 bn. One important clause to highlight is that Twitter is allowed to pursue a legal case to force Musk into buying Twitter. Along with several other clauses, another important one to highlight is that Twitter’s claims shouldn’t be misleading. Musk’s main argument is with this clause.


After signing the deal, Musk immediately felt dismayed by Twitter’s alleged uncooperativeness. Musk’s lawyer Mike Ringler, said, “sometimes Twitter has ignored Mr. Musk’s requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information.” Musk obtained access to Twitter’s “firehose” by signing the deal, which is a real-time stream of all tweets being tweeted, which includes about 500-million tweets a day. Twitter’s public claim is that 5% of those tweets are performed by spam bots, which Musk is using as an excuse to back out of his deal. Musk’s argument is that the 5% is vastly off, and after examining the data from the “firehose”, he reportedly found that around 20% are bots or spam. In a letter to Twitter, Musk accuses Twitter of making “false and misleading representations”.


Even so, legal experts are hesitant to give Musk the victory in this case, and on the contrary, think that Musk’s argument isn’t enough to break out of the deal, mainly due to the clause in the deal that allows Twitter to bring a case to court if Musk breaks off. In a tweet, a chairman of Twitter’s Board, Bret Taylor, says, “the Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.”

Ann Lipton, a business law professor at Tulane University Law School, has this to say about the case, “merger agreements are drafted to avoid exactly what Musk is doing, which is trying to find some tiny little false thing and then say, 'Whoops, I get to walk away now.’ They specifically say things like, you can't back out unless it's not just false, but incredibly false, hugely false, massively damaging to the company." Although it would cost Twitter to pursue the lawsuit, the money gained from Musk buying Twitter is much more than the lawsuit would cost to pursue or the amount of money Twitter could make in the coming years.



Sources:

https://www.npr.org/2022/07/08/1110539504/twitter-elon-musk-deal-jeopardy

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