August 2022 Business Litigation Update

A Look at the Possible Outcomes
of a Very Public Battle

It has been a whirlwind of headlines.  It started in March, when Elon Musk began accumulating a large position in Twitter, resulting in the company adopting a poison pill to remain independent.  Then, in late April, Musk secured approximately $13B in outside financing and made an offer to buy Twitter for $44B, in a deal that would take the social media giant private. Twitter agreed.

Now, fast forward to today, and Musk and Twitter are in the midst of a mega-lawsuit after Musk backed out of the deal, on the pretext that Twitter failed to provide him with accurate data on “bot” accounts. On July 12, Twitter sued Musk in Delaware Chancery Court in an effort to force him to go through with the acquisition.  But will that actually happen? What if the court orders Musk to follow through with the deal and he refuses? Or will he be allowed to walk away?

We look below at a few ways this very complicated and very high-profile lawsuit could play out.

The Court Orders the Deal to Go Through…Musk Says No
This is in no way a normal occurrence, but the Delaware court could order Musk to go through with the deal and he could refuse to comply.  Musk has a history of ignoring rules he does not like and testing boundaries, and it would not be completely surprising in this case if he simply refuses.

If that happens, the Delaware court would have some tools it could use to try to force Musk to comply – heavy fines for each day of non-compliance or appointing a receiver to seize and sell Musk’s assets, being two examples.

The Court Allows Musk to Walk Away…With Penalties
The court could rule that Musk can walk away from the deal, but he would likely owe Twitter a very large sum of money.  One option here is for the court to rule in favor of Twitter, but not force the deal. The Judge could simply award damages, and those are essentially “capped” at $1B under the merger agreement.

Twitter Could Attempt to Settle…If Musk Agrees
Because damages are basically capped at $1B and there is always the chance that Twitter loses at trial, the company might try to settle the case.  This would allow Twitter to potentially receive more than the $1B cap; however, it would likely not be near the $44B Musk agreed to pay to take the company private.

Settlement should also be an appealing option for Musk.  His purported reasons for backing out of the deal are viewed by most commentators as weak, meaning Musk has a very real chance of losing at trial.  A settlement would also avoid dragging this dispute out through October when the case is set to go to trial.

We of course don’t yet know how things between Twitter and Musk will play out, but it will be incredibly interesting to watch!  Most commentators predict Musk will ultimately settle and pay more than $1B but less than the $44B he originally agreed to pay.  We will keep you posted on any further developments.