Anyone who bought an iron online can just send it back soon if they don’t want one anymore. Once you’ve signed a deal to buy a billion-dollar company, it’s not that easy to get out of there. Elon Musk tries anyway.
The 51-year-old Tesla boss and billionaire tries to cancel the purchase of the social network Twitter. And this despite the fact that Musk and Twitter have had a deal since April under which Musk will buy the company for 44 billion dollars. It already owns 9.1 percent. Twitter.
His lawyers filed a document with the US Securities and Exchange Commission on Friday in which Musk is withdrawing from the purchase of the company. They mainly justify this by the fact that Twitter gives too low a number of so-called spam bots. These are user accounts that automatically distribute, for example, silver advertising or propaganda. So the argument is that Twitter bosses have defrauded Musk, a short message service with far fewer real human users than it claims. Twitter CEO Bret Taylor toresign suggests they go to court to force Musk to make a deal as agreed.
Musks plays in front of an audience on social media. This triggers a complicated process deep in the US machine shop to take over big money. Corporations buy start-ups to grow their empires. Private equity firms and hedge funds trade entire firms, such as used cars. And a billionaire like Musk buys companies like Twitter out of a personal fascination, at least until he changes his mind. Now our focus is on where many of these stories unfold: Delaware.
Was the purchase offer just a joke?
More than half of the big US companies have their official headquarters in a small East Coast state, including Twitter. Taxes are low and judges specialize in company law. They will decide whether Musk can walk away from the deal without consequences; would he get away with a billion dollar fine; or if he actually needs to buy Twitter for $ 44 billion.
The true motives of the serial entrepreneur remain in the dark. Speaking at a business meeting in Sun Valley on Saturday, he avoided questions about Twitter. He preferred to talk about his ideas for the colonization of Mars. Musk is said to have some Twitter addiction, with his 100 million followers only surpassed by former US President Barack Obama and mega-celebrities like Rihanna. The website is his favorite toy, on which he spreads his libertarian worldview, which has recently become increasingly open to reactionary views and which he makes fun of his critics. So it is not entirely out of the question that his offer to buy from the beginning was just another hoax staged by a billionaire who had earned his reputation as an internet troll.
The next act of drama takes place not on the social media stage or in front of a jury, but in front of the judges of the Chancery Court in Wilmington, Delaware, the main court dealing with corporate property issues.
Musk’s lawyers put forward three arguments in favor of canceling the purchase: First, Twitter deceived. The company’s claim that less than five percent of user accounts are fake is a huge understatement. Musk has provided no evidence of this. According to the second accusation, this is due to the fact that Twitter did not provide him with any information. However, there is no evidence that the company was not transparent. On the contrary, Musk, after signing the contract, begged Twitter for new dates and received them. Twitter also gave him access to the “fire hose”, a data stream where Musk’s experts could rate each tweet. So it will be exciting how Musk’s lawyers want to calculate that a large proportion of Twitter users aren’t human at all.
Third, Musk’s lawyers say Twitter fired two senior executives after the deal. This is unlikely to impress American judges, especially during the economic downturn.
All of this, however, would only give Musk the right to withdraw from the purchase if Twitter’s business failed. Such clauses in purchase contracts are intended, for example, to prevent companies from concealing their debts. However, business judges in Delaware rarely find such a case. The exception was the lawsuit against the medical technology company Fresenius. He was allowed to cancel the acquisition of the pharmaceutical company Akorn in 2018 because its managers withheld important information from him.
A deal is a deal, so the judges keep it
Overall, Twitter’s odds aren’t bad. Because it sounds absurd that you can force someone into a billion dollar deal that they no longer want, courts repeatedly condemn those who do not want to do so. It was only after the Covid pandemic in Delaware that there were two clashes. Kohlberg, a private equity firm, has entered into a takeover agreement with the cake decorator Decopac. When the pandemic turned everything upside down, Kohlberg tried to cancel the purchase. Nothing there, the judges said, a deal is a deal. Kohlberg had to buy a Decopac.
Jewelry firm Tiffany finally forced luxury goods maker LVMH to buy it. However, LVMH ultimately paid $ 420 million less than originally agreed. Musk could also speculate on such a rebate. Maybe you need it. After all, his Tesla share price has plummeted since the transaction. Their value accounts for a large part of his wealth.
There is also a psychological component to Delaware, as Bloomberg columnist Matt Levine notes: Will a Delaware judge really force the richest man in the world who has an army of social media fans behind him to make a deal? It could intimidate even a Delaware judge. The case may also be a test of the independence of the American judiciary.