28th March 2023

Elon Musk’s showdown with Twitter Inc. TWTR -5.10% has set the stage for what may develop into some of the uncommon courtroom battles in corporate-takeover historical past—a spurned acquisition goal that by no means sought to be purchased probably making an attempt to pressure the client who soured on the deal to see it by.

In simply over three months, Mr. Musk aggressively pursued a takeover that Twitter first resisted, then he prevailed and reneged—all of the whereas utilizing the very platform to ridicule Twitter and its leaders and drop hints about his shifting intentions.

With Mr. Musk’s try to terminate his $44 billion takeover, Twitter says it plans authorized motion. In an announcement Friday, it indicated it should file a lawsuit within the Delaware Courtroom of Chancery arguing Mr. Musk should shut the agreed-upon deal.

Friday night, he filed papers saying he wished out, taking purpose at Twitter on a number of fronts and saying the corporate violated the merger settlement. He accused Twitter of withholding information from him to confirm info in regards to the enterprise and that its statements on the quantity of spam on the platform signify materials misstatements to regulators. He additionally argued the corporate was making important adjustments to the atypical operating of the enterprise with out his consent, corresponding to imposing a hiring freeze and layoffs.

Company-law consultants say Twitter seems to be on sounder authorized footing than Mr. Musk. The submitting didn’t present proof to again up his assertion that the estimate was inaccurate or an alternate calculation. “This isn’t even within the ballpark,” stated Zohar Goshen, professor of transactional legislation at Columbia Regulation College, including that the impression on an organization’s worth must be so dramatic that its worth could be halved, for instance.

Layoffs and hiring freezes at tech corporations in current weeks even have develop into commonplace. Fb mum or dad Meta Platforms Inc. has in the reduction of on hiring and Mr. Musk’s Tesla Inc. TSLA 2.54% is trimming workers.

The query stays whether or not it’s actually attainable to pressure the eccentric billionaire—recognized for eschewing norms even when it will get him in authorized hassle—to purchase an organization he doesn’t need to personal.

“What are they going to do if there’s a judgment and he says, ‘Effectively, I’m nonetheless not going to purchase it’?” stated Mr. Goshen. “They don’t actually have instruments to pressure him to undergo with it. You don’t put individuals in jail as a result of they don’t purchase one thing.”

There have been a couple of examples of consumers being pressured to comply with by with purchases below the “specific-performance” clause Mr. Musk agreed to, however most had been small offers. By no means has the idea of a courtroom forcing a purchaser to finish a deal been examined on such a big scale.

Most authorized clashes over soured offers finish in settlements involving a value reduce or one-time cost. Mr. Musk agreed to pay a $1 billion reverse termination payment to Twitter if the deal falls aside, triggered below sure eventualities together with if his debt financing falls by or regulators attempt to block the deal. Neither has occurred.

The conflict pits a number of white-shoe legislation companies towards one another. Twitter has not too long ago retained Wachtell, Lipton, Rosen & Katz, individuals conversant in the matter stated, whereas Mr. Musk is utilizing Skadden, Arps, Slate, Meagher & Flom LLP. Twitter has already been working with Simpson Thacher & Bartlett LLP and Wilson Sonsini, whereas Mr. Musk’s group additionally consists of attorneys at Quinn Emanuel Urquhart & Sullivan.

The settlement caps at $1 billion the quantity Twitter may sue for damages, that means its solely choices are to sue for particular efficiency to pressure him to comply with by, or a most of $1 billion. A consultant for Mr. Musk declined to remark.

The standoff leaves Twitter in a precarious place, on condition that its prospects as a stand-alone firm are daunting partly due to a digital-advertising market in upheaval. Twitter shares closed at $36.81 Friday, 32% beneath the $54.20-a-share value Mr. Musk agreed to pay.

Dealing with broadsides from Mr. Musk and a softening advert market, Twitter CEO Parag Agrawal has been making an attempt to organize it for a tough interval forward, whether or not below Mr. Musk’s possession or not. In Might, he introduced a hiring freeze and belt tightening, saying he was taking motion through the takeover as a result of financial situations had worsened and Twitter couldn’t assume the take care of Mr. Musk would shut. This previous week, he reduce recruiting workers.

Traders seem unnerved by the most recent twist, sending Twitter’s inventory 4.81% decrease in Friday after-hours buying and selling following Mr. Musk’s disclosure.

Twitter CEO Parag Agrawal, left, at Allen & Co.’s Solar Valley convention this month.


Musk’s romp

Mr. Musk’s Twitter romp started with the unannounced buy of $22.Eight million of Twitter shares on Jan. 31. He saved shopping for in February and March, constructing a roughly 9% stake for $2.6 billion and changing into the most important particular person investor.

He took public jabs at Twitter, polling his followers on the location over whether or not it adheres to free-speech rules and publicly toying with the thought of began a rival. By the point his stake grew to become public on April 4, Mr. Musk had been secretly speaking to Twitter for 9 days.

He initially reached out to Jack Dorsey, the corporate’s co-founder and a buddy of Mr. Musk’s, then spoke to director Egon Durban, co-CEO of private-equity agency Silver Lake, one other acquaintance, in accordance with a public submitting on the deal.

The discussions started congenially, with Mr. Musk saying he would possibly need to be part of the board. Then on Apr. 9, hours earlier than taking the board seat Twitter had agreed to present him, he withdrew. 4 days later, he made an unsolicited takeover provide at $54.20 a share and made the provide public the next day.

Twitter initially appeared to show up its nostril however finally relented—partly as a result of administrators concluded that nobody else was more likely to have the curiosity or skill to purchase the corporate on the value Mr. Musk was providing. The billionaire agreed to waive detailed due diligence of Twitter’s enterprise.

Twitter co-founder Jack Dorsey in 2021.

Picture: marco bello/Agence France-Presse/Getty Photos

Even because the transaction was coming collectively, Mr. Musk was voicing issues a couple of darkening financial and enterprise outlook. In late March, Tesla needed to quickly shut its auto plant in Shanghai, the corporate’s largest, as China applied pandemic restrictions, sending the inventory steadily decrease. And, on an April 20 earnings name, Mr. Musk talked about mounting inflationary pressures.

On Might 13, Mr. Musk shocked many individuals concerned within the take care of a predawn tweet saying the deal was “quickly on maintain.” He later added he remained dedicated to seeing it by. He cited questions on Twitter’s estimate that fewer than 5% of its monetizable day by day common customers are spam or faux accounts.

Pretend accounts are actually a priority for social-media corporations. However Mr. Musk had lengthy been conscious of faux accounts on Twitter—he tweeted about it not less than way back to 2018—and Twitter’s estimate hadn’t modified in years. Mr. Musk stated repeatedly that a part of his objective as proprietor could be, as he put it in an April 21 tweet, to “defeat the spam bots or die making an attempt!”

The Might 13 bombshell kicked off weeks of private and non-private backwards and forwards between Mr. Musk, Mr. Agrawal and attorneys and advisers for each side, in accordance with Friday’s submitting. After Mr. Agrawal on Might 16 tweeted an evidence of the corporate’s spam accounting, Mr. Musk responded with a poop emoji, then adopted up with a query: “So how do advertisers know what they’re getting for his or her cash? That is basic to the monetary well being of Twitter.”

Requested on Twitter on Might 26 in regards to the prospects of a recession, Mr. Musk stated he anticipated one that might final 12 to 18 months. On Might 24, Tesla shares hit their lowest level since June 2021, down practically 50% from their all-time excessive in November. The autumn had knocked greater than $100 billion off Mr. Musk’s web value, weakening a key asset he was utilizing to assist fund the Twitter deal.

As he was lining up financing, Mr. Musk bought $8.5 billion of Tesla inventory over three days. Afterward, he stated he deliberate to promote no additional shares. He stays the auto maker’s largest investor, with a stake of round 16%, and deliberate to borrow towards his stake. His unique financing plan for Twitter included $12.5 billion from margin loans backed by Tesla inventory he owns. However Tesla’s share value saved falling, successfully rising the variety of shares Mr. Musk must pledge as collateral.

Tesla’s Gigafactory in Shanghai in June.

Picture: Qilai Shen/Bloomberg Information

A couple of month after the deal—with Tesla shares now down 37% from when Mr. Musk agreed to purchase Twitter—Mr. Musk filed a revised funding plan that eradicated the margin loans. As an alternative, he pledged extra fairness financing. The funding particulars left questions on how Mr. Musk would provide you with roughly $14 billion of his financing package deal that he nonetheless wanted to safe himself or by outdoors buyers.

Twitter’s troubles

On April 21, Twitter rival Snap Inc. had spooked buyers with disappointing earnings and a stark warning of hassle within the digital advert market. Twitter, quickly after, withdrew all beforehand supplied objectives and outlooks with its first quarter earnings, and didn’t present any forward-looking steering.

On Might 12, Twitter’s Mr. Agrawal instructed workers the corporate was imposing a hiring freeze and chopping again on spending.

Whereas some Twitter workers expressed optimism that Mr. Musk would possibly reinvigorate the corporate, many had been bewildered about their futures and upset at Mr. Musk’s incessant public hectoring, The Wall Road Journal has reported.

Within the month after the deal was inked, executives held greater than a dozen companywide or division-wide conferences to handle worker questions. One senior Twitter government, in a Might inner word, referred to as it a “chaos tax.”

When Mr. Musk on Friday stated he was aiming to desert the deal, a Twitter government urged workers to chorus from commenting on the matter, citing deliberate authorized motion, in accordance with a message considered by the Journal. That message was shared with outsiders inside an hour.

Twitter’s San Francisco headquarters in April.

Picture: Peter Dasilva/EPA/Shutterstock

Mr. Musk on Saturday addressed attendees on the annual Allen & Co. gathering of media and tech leaders in Solar Valley, Idaho, principally steering away from Twitter. He targeted his remarks on explaining how he kinds his opinions and what goes into the conclusions he reaches.

At one level, he did ask his viewers what number of thought the variety of faux accounts on Twitter was lower than 5%, stated an attendee, and other people appeared hesitant to lift a hand.

Write to Cara Lombardo at cara.lombardo@wsj.com and Robert Wall at robert.wall@wsj.com

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