Elon Musk vs Twitter: what happens next? The Tesla billionaire ditched his US$44 billion deal, the social media platform sued … and there are 3 possible endings, according to experts

Elon Musk and Twitter’s legal battle could last for years, experts say. Photo: Getty Images for The Met Museum/Vogue/TNS, AFP

Elon Musk may be trying to walk away from his US$44 billion deal to buy Twitter, but the saga is far from over.

First, backing out isn’t that simple: the terms of the deal require Musk to pay a US$1 billion termination fee, a fee Musk doesn’t think he should have to pay. Then, Twitter apparently still wants the deal to close. The company hired a major law firm to sue Musk, and the board has said in a statement that it was “committed to closing the transaction at the price and terms agreed upon”.

All of that means that Musk and Twitter will have to gear up for what’s sure to be a legal battle royale – one with at least three possible outcomes …

1. Musk wins

Tesla CEO Elon Musk. Photo: AFP
A letter sent from Musk’s lawyers argues that Twitter failed to comply with its contractual obligations to disclose how many fake accounts there are on Twitter’s platform. The letter accuses Twitter of ignoring or outright refusing Musk’s requests for information about Twitter’s users and its business practices, and of making “false and misleading representations” about the number of bots there are on Twitter.

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Three legal experts said that Musk’s triumph in court is one of the least likely outcomes to the court battle.

“Musk’s best argument is a tough one,” University of Michigan Ross School of Business Professor Erik Gordon said. “He can’t win on anything in the actual acquisition agreement because it doesn’t leave room for many loopholes.”

Gordon said Musk’s best opportunity could be to argue for fraud, which would mean “he’d have to show that Twitter not only deliberately misrepresented the number of bots on its platform to his detriment, but that he had good reason to enter the agreement without questioning that data”.

Elon Musk’s lawyers have highlighted how Twitter did not disclose how many bot accounts there are on the social media platform. Photo: Reuters

Ann Lipton, a business law professor at Tulane University Law School, said she also didn’t like Musk’s chances: “Unless Elon Musk pulls a rabbit out of a hat, his legal claims are quite weak,” she said.

Meanwhile, Matteo Gatti, a law professor at Rutgers Law School, commented that if a judge sides with Musk, he would walk away from the deal, scot-free, without having to buy Twitter or pay the US$1 billion fee.

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2. Twitter wins

Twitter is in a stronger position to win against Elon Musk in the upcoming court battle, according to legal experts. Photo: AFP

Twitter is in a stronger position to win in court, several experts said, but the company has reasons not to prolong a legal battle, including the health of its business, whose stock price could suffer further in a prolonged court battle.

“It’s going to get pretty tricky, pretty fast for Twitter,” said John McClaine, a portfolio manager at Brandywine Global Investment Management. “There’s a reasonable likelihood that in litigation, Twitter is forced to disclose information that could further negatively impact its stock price.” Twitter had fallen nearly 10 per cent on Monday, July 11, alone – trading around US$33.20 a share, far less than the US$54.20 Musk had put on the table.

Twitter’s stock value plunged by nearly 10 per cent on July 11. Photo: CNBC Television/YouTube

The longer this saga drags out, the worse it is for Twitter, Gatti said.

There are two possible outcomes if Twitter wins in court, Gatti continued: one is a settlement, which would see Musk paying the US$1 billion fee and then some; two is Musk is forced to buy the company at the original price.

“Damages are probably the better course of action from the company’s perspective,” Anat Alon-Beck, a law professor at Case Western Reserve University, said via email. “We know about the US$1 billion – it’s entirely possible that Twitter could get even more for all the damages Musk caused the company.”

Elon Musk is a long-time avid Twitter user … but attempting to buy the platform hasn’t gone well for him. Photo: AFP

Gordon echoed that Twitter is unlikely to let Musk walk away without paying substantially more than the US$1 billion break-up fee. The company would be unable to prove it had done its fiduciary duty if it allowed Musk to walk away after paying less than 2.5 per cent of the entire value of the deal, he said.

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3. They reach an agreement

Could Elon Musk and Twitter make up after breaking up? Photos: AFP

A settlement or price negotiation could be the most favourable resolution for both parties in a court battle that could take as long as three years, experts said. Proceedings will be held in Delaware Chancery Court because Twitter is domiciled there, as are many US companies because of the state’s laws that are seen as corporation-friendly.

“Twitter has a strong case,” Gordon said. “They have a strong contract, but you never know what will happen in court.” Because of that uncertainty, Twitter might very well agree to be purchased for a lower price than had been agreed, Gordon said.

Tiffany & Co. sold to LVMH at a tremendous discount – and Twitter might need to follow suit. Photo: Bloomberg
A similar situation occurred in 2020, when the jeweller Tiffany & Co. agreed to sell to French luxury goods conglomerate LVMH for a reduced price of US$16 billion – a US$425 million discount.

The renegotiated price is likely to be a major pain point, however. Angelo Zino, an analyst at CFRA Research, said Musk would likely want to slash at least 20 per cent off the deal – a cost cut that Twitter is unlikely to go for.

“Right now they can’t risk taking a settlement that wouldn’t be defensible in court,” Gordon said, noting Twitter is likely to face a slew of shareholder lawsuits in the wake of its battle with Musk. “The existing contract is so strongly favourable to Twitter that they can’t give a discount greater than 5 to 10 per cent.”

Ultimately, Musk is a wild card.

“Legally, this isn’t a hard case,” Lipton said. “Most cases of this sort have a much stronger argument, but Elon Musk is always an X factor.”
This article originally appeared on Business Insider
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  • The Tesla billionaire ditched his US$44 billion deal, the social media platform sued … and there are 3 possible endings, according to legal experts
  • Dragging out the legal battle might cause Twitter’s stock value to plunge even further, but it could always sell at a discount, like Tiffany & Co. did with LVMH