Twitter accepted Elon Musk’s offer in April to buy it for $44 billion (€44 billion). Nearly six months later, the impulsive billionaire has again made the same proposal.
In the time between those offers, the two parties went from toasting the prospect of a new era for the social media platform under Musk to facing off in a highly acrimonious legal fight after the Tesla chief executive attempted to back out of the agreement, accusing Twitter of lying about the number of its fake accounts.
On Tuesday, less than two weeks before a trial was scheduled to begin, Musk’s lawyers said the entrepreneur in fact intended to close the deal at the previously agreed price of $54.20 a share, once debt financing is received, provided the court halts the legal action.
The sudden reversal marks an embarrassing surrender for the billionaire, analysts say, and an acknowledgment of the weaknesses of his case, after both parties dealt with a brutal discovery process and accusations from the other side of a lack of co-operation under the watchful eye of a no-nonsense judge in Delaware.
“Clearly, it’s a big pill to swallow for him,” said Eric Talley, law professor at Columbia Law School.
Tweeting on Tuesday, Musk appeared unfazed after his about-face and touted plans for a future super app. “Buying Twitter is an accelerant to creating X, the everything app”, he wrote — enthusiasm that stood in stark contrast to earlier court papers in which he accused the company of a “broader conspiracy ... to deceive the public, its investors and the government about the dysfunction at the heart of the company”.
Even so, the deal is not yet done. The social media group is still seeking assurances from the court that Musk is not simply attempting to delay a trial, and will pay up, said people familiar with the matter. “I wouldn’t expect Twitter’s lawyers to [drop the lawsuit] until they have something that’s credible, believable and more dependable than the last deal we got,” Talley said.
For both sides, the highly public court battle has been taxing. Nearly 700 entries have been entered into the Delaware Chancery Court docket in less than three months, and the sides have repeatedly turned to the court to settle esoteric disputes of such matters over query terms and date ranges for searches of messages on Slack.
Musk had initially sought to delay the trial until 2023, since the financing commitments from Wall Street were good until next April. The judge, Kathaleen McCormick, however, agreed with Twitter that such a lengthy delay was simply too much for the company to bear — it has been hit by low morale, staff exits and business disruption internally because of the uncertainty around the deal. An October 17th trial date was set.
Meanwhile, Twitter grew increasingly frustrated that Musk appeared to not be producing his entire range of relevant electronic messages discussing the deal. McCormick echoed that sentiment last month, noting “glaring deficiencies” in the discovery efforts by the billionaire’s team, and also curbed many of his discovery requests.
McCormick did allow Musk to amend his case to include claims from Peiter Zatko, Twitter’s former head of security who in August publicly accused the company of violating government orders on data security.
“I think we were very close to the end of the discovery, and Musk’s lawyers did not get what they wanted,” said Stefano Bonini, a corporate governance expert at Stevens Institute of Technology.
“The judge has not given that many concessions to Elon’s team. They filed requests for an unreasonable amount of data, and the judge ruled that a lot of what they asked for was unnecessary and genuinely confidential.”
Last week Musk’s inner circle of Silicon Valley associates fell under the spotlight after a trove of hundreds of messages were published, revealing how many rushed to offer to finance his initial bid and support his aim of bringing “free speech” ideals to the platform.
But some of the most personal discovery was still to come. Musk was set to be deposed on Thursday and Friday by some of the country’s top lawyers on behalf of Twitter.
“This was going to be one of the most unpleasant depositions,” Talley said. “It was clear that the discovery record has some damaging stuff.”
He pointed to an instance in which Musk stated that he did not use encrypted messaging app Signal in relation to the deal; Twitter in discovery said it uncovered a Signal exchange between the billionaire and Marc Andreessen, the venture capitalist.
Alex Spiro, Musk’s lawyer, had also been ordered to produce an affidavit on Wednesday related to potential interactions with a whistleblower.
Most observers have noted wavering buyers have had virtually no luck in Delaware court backing out of deals, and Musk’s claims about excessive bots, deceptive user counts and erroneous securities filings remained long shots.
Twitter said Musk breached the deal contract by not making a good-faith attempt to close the deal. The company’s lawyers showed a text message exchange from May when Musk wrote to his banker: “wouldn’t make sense to buy Twitter if we’re heading into world war three”.
According to documents presented by Twitter, reports by Musk’s own data scientists — shared with him a day before he first attempted to pull out the deal — failed to support his claim that the number of fake accounts on the social media platform was “wildly higher” than the company’s estimates. The social media group’s shares have risen since the Tesla CEO attempted to pull the plug.
Still, Andrew Jennings, a professor at Brooklyn Law School, said he expected Twitter “will likely insist on having an ironclad agreement to close” such as a stipulation judgment — a formal court order that requires one party to pay another — or “some other mechanism that puts the court’s contempt power behind closing the deal”.
McCormick would also “demand that sort of certainty”, he said, adding: “Neither wants to be back here a month or two from now if Musk decides to back out again.” — Copyright The Financial Times Limited 2022