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 Elon Musk's Twitter profile displayed on a computer screen and Twitter logo displayed on a phone ... [+] screen are seen in this illustration photo taken in Krakow, Poland on April 9, 2022. (Photo by Jakub Porzycki/NurPhoto via Getty Images) 
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I’m not jealous of the corporate lawyers that have to deal with this saga over the weekend. After months of speculations, Elon Musk has officially withdrawn his bid to purchase Twitter 
 TWTR 
 . 


In a filing with the Securities and Exchange Commission on Friday, July 8, 2022, Musk pulled out of the deal, citing several alleged material breaches of multiple provisions of the merger agreement by Twitter. Not surprisingly, Musk has also called into question Twitter’s claims regarding fake or spam accounts. 

However, this saga is far from over. Now begins a new legal battle on the following issues:



<ul> 
 <li>whether or not the deal is truly dead (Musk signed a contract)?</li> 
 <li>whether Twitter is owed a significant penalty by Musk for pulling out of the deal ($1 Billion)? and</li> 
 <li>whether Twitter can force Musk to complete the deal anyways (specific performance)?</li> 
</ul>


So, what’s next? Parties go to court. In case you are wondering – it will probably be Delaware. Any business-person, transactional lawyer or law student knows very well that Delaware is THE authority on corporate law and governance in the U.S.A. I trust that the judges will do an amazing job. 

Twitter has already previously said they are willing to take him to court to finalize the deal. Twitter spokesperson Brian Poliakoff was cited in a June article and reaffirmed that they “intend to close the transaction and enforce the merger agreement at the agreed price and terms.”

<h2>There are Several Points of Contention</h2>
First, fights over access to data and adequate disclosure. Almost as soon as the deal was announced in April, Musk has been alleging Twitter has inaccurately reported the number of fake or spam accounts. 

According to a letter from his lawyers attached to the filing, “Mr. Musk and his financial advisors at Morgan Stanley 
 MS 
 have been requesting critical information from Twitter as far back as May 9, 2022—and repeatedly since then—on the relationship between Twitter’s disclosed mDAU figures and the prevalence of false or spam accounts on the platform.” In a May 25 letter, Musk made clear his goal was to conduct “an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform.” 


Twitter was probably initially reluctant to give up information which they view as proprietary, but eventually decided to provide Musk with significant amounts of raw data, which they believed was sufficient to assuage his concerns. But, in the view of Musk and his advisors, this was probably insufficient. 
According to Musk’s letter, Twitter has failed to provide data and information on several items, with most related to “mDAUs” or monetizable daily account users. 
Another interesting point is that not only did Musk waive his rights for further inspection of Twitter’s books when entering into the initial agreement, but he cites the need to provide information to his creditors to secure the debt financing to close the deal. This comes despite the fact that for months Musk has publicly stated he had already secured the financing necessary. 
Musk is further alleging that he relied upon Twitter’s representations in their public filings to his detriment and after his “partially and preliminary” analysis, “all indications suggest that several of Twitter’s public disclosures regarding its mDAUs are either false or materially misleading.” 
According to Musk’s lawyers, “preliminary analysis by Mr. Musk’s advisors of the information provided by Twitter to date causes Mr. Musk to strongly believe that the proportion of false and spam accounts included in the reported mDAU count is wildly higher than 5%.” 
Of course, Musk and his lawyers glanced over the fact that if Twitter was in fact making false or materially misleading statements in their public filings, they’d also be in violation of SEC rules and the Securities and Exchange Act. Then again, Musk has some experience with being in hot water with the SEC.
Finally, Musk is complaining that Twitter didn’t comply with the Merger Agreement and deviated from its obligations to conduct business in the ordinary cause, due to the fact that some key employees were fired, there is a hiring freeze and others left the company. Some of us still remember why some key employees resigned. In any event, I’m not sure that a sophisticated court will buy this. 
<h2>What Happens Now?</h2>
In the eyes of Elon, the deal is now dead. For the rest of the world, including Twitter, the fight may just be beginning. There is still the question of the $1 billion breakup fee built into the agreement that is imposed upon Musk for backing out. 
Twitter Board Chairman Bret Taylor has already said that the board still is committed to closing the transaction on the agreed upon price and is planning on pursuing legal action to enforce the deal. In a tweet just hours after Musk filed his separation, he said, “We are confident we will prevail in the Delaware Court of Chancery.”
Twitter has every incentive to try to enforce the deal. Shares of the company closed at $36.81 a share on July 8. The merger agreement calls for Musk to purchase those same shares at $54.20, which now represents a more than 47% premium on market price. Even if they are unsuccessful in having the deal closed, the $1 billion breakup fee may be incentive enough to sue. They also have significant reputational risk on the line here. If they don’t at least attempt to force Musk to close, they’ll have his allegations of false statements hanging around their necks unless they contest his statements. This fight is just beginning and only time will tell on how steep a penalty each side will pay to close this deal. 
Some commentators believe that this is a tactic to try to reduce the purchase price. Maybe, I'm not sure though. If you want to red more on this line of thinking, check out my previous analysis on buyer’s remorse. 
One last question though – are the regulators going to step in again? it seems that Musk was in hot waters with the SEC not too long ago. Remember what happened when he tweeted about taking Tesla 
 TSLA 
 private? Musk was able to cut a deal, step down as chairman and had to get pre-approval by counsel before tweeting. Is the SEC going to step in again? Again, only time will tell.
Thank you to my research fellow, John Livingstone. If you have any comments, suggestions or feedback, please send them to John Livingstone john.livingstone@case.edu or to me anat.beck@case.edu.
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TWTR

In a filing with the Securities and Exchange Commission on Friday, July 8, 2022, Musk pulled out of the deal, citing several alleged material breaches of multiple provisions of the merger agreement by Twitter.

Let The Games Begin!