Elon Musk arrives at the In America: An Anthology of Fashion themed gala at the Metropolitan Museum of Art in New York, New York on May 2, 2022.
Andrew Kelly | Reuters
In the latest twist in the Elon Musk-Twitter saga, the world’s richest man has told the social media company that he no longer intends to buy it. Twitter Chairman Brett Taylor immediately shot back that the company intends to go to court to get the $44 billion deal closed on the agreed price and terms.
It’s hard to predict how a drama will end up, especially one involving a mercurial merchant. It is impossible to guess all the various permutations that may eventually involve secondary issues such as funding. But here are eight possible scenarios.
In theory, this could be the cleanest option for everyone—no litigation, Musk agreeing to pay a $1 billion termination fee, and Twitter continuing, albeit at a much lower $44 billion valuation. That’s the way of Twitter co-founder Eve Williams seemed to be in response when he tweeted that he would have asked if “we could just let this whole ugly episode be over” if he was still on the board of directors.
The problem is that the board could be breaching its fiduciary duties if it allowed Musk to opt out — and Taylor’s response shows that Twitter has no intention of doing so.
Twitter also has a strong legal case that Musk decided to buy the company for $54.20 per share. Allowing him to leave only after he’s paid for the breakup is likely to send Twitter stock even lower. They were already trading at a deep discount as investors doubt whether and when the deal will happen. On Friday, the stock closed at $36.81.
“They can’t just say, ‘Okay, let’s save us the pain, Elon, we’ll let you knock the price down to $20 a share, or we’ll make a deal, we’ll agree to walk away if you just pay a billion-dollar break fee.'” said Ann Lipton, a professor of corporate governance at Tulane Law School. “Twitter just can’t do it.”
2. Twitter wins the lawsuit, Musk buys the company
There is no precedent for a judge upholding a so-called “performance” clause to enforce a $44 billion contract. But there are examples of judges forcing buyers to take deals even when they don’t want to.
In 2001, the Delaware Court of Chancery ruled that Tyson Foods had to buy IBP Inc., the largest beef distributor in the U.S. at the time, from the former agreed on a price of $30 per share. Tyson tried to pull out of the deal after both companies’ financials declined after the deal was signed — just as Musk is trying to get out of Twitter. A judge ruled that Tyson could not simply walk away due to buyer’s remorse, and the company was forced to purchase IBP at the originally agreed upon price, which valued IBP at $3.2 billion. To this day, Tyson owns IBP.
Tyson Foods Inc. sign at Tyson headquarters in Springdale, Arkansas.
April L. Brown | AP
A forced deal could be the best-case scenario for Twitter investors, but could leave Twitter and its employees facing an unstable future. If Musk really doesn’t want to own Twitter anymore, forcing him to do so could lead to yet another sale, more management changes and headcount thrown into a whirlwind of uncertainty that could last for years.
Starring Vanderbilt law professor Morgan Ricks tweeted, it’s entirely possible that a judge would have ordered Musk to pay damages rather than force ownership, especially given that Musk violated government rules and regulations. The judge may be concerned that if Musk doesn’t want to buy Twitter, he could make the ownership transition so difficult that the collateral damage would be brutal.
4. Musk agrees to settle with Twitter
In that case, Musk would likely pay his $1 billion severance fee and billions more in a mediated settlement with Twitter. The settlement should likely be enough for Twitter’s board to prove to investors that it made the right fiduciary decision to take the settlement money instead of litigation.
If Musk can prove that Twitter gave him false information and that the true details would have a materially negative impact on the company, he can leave without having to pay a breakup fee. He has In explaining why he is ending the deal, Musk claims that Twitter failed to meet its contractual obligations after signing the merger agreement.
Musk’s main argument is that Twitter hasn’t provided enough detail or evidence to show that spam accounts make up 5% or less of all accounts, as the company claims it estimates.
“All indications are that Twitter’s few public disclosures regarding its mDAU [monetizable daily active users] are either false or misleading,” Musk and his lawyers wrote in a statement.
Images by Sheldon Cooper/SOPA | Lightrocket | Getty Images
6. Musk changes his mind again
Musk’s motivation for trying to stop the deal may be a negotiating tactic to force Twitter to lower the acquisition price. The market, and particularly some media and technology stocks, have fallen significantly since April 25, the day Musk agreed to buy Twitter. During that period, Snap’s social network peers fell 50%.
It’s possible Musk and Twitter could agree to a lower price — probably with a very painful breakup fee to ensure he doesn’t try to renegotiate again — to accommodate the market correction.
This may be the most unlikely option of all, but it’s possible that another company could swoop in and buy Twitter for less than $54.20 per share. Twitter’s board may argue that the deal provides more certainty than taking Musk to court.
However, a scenario in which another buyer acquires Twitter seems more likely after a lawsuit where Twitter loses or settles. Then Musk won’t be aware, but Twitter will explore its options to either get the full $44 billion or take more losses.
There are no known buyers interested in buying Twitter.
WATCH: Elon Musk ends deal with Twitter and claims board over material breach
8 ways the Elon Musk and Twitter saga could end
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