Corporate Law Expert Says Musk Can’t Just Walk Away From Twitter Deal

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Musk’s tweet said his acquisition of the platform was “temporarily on hold.”

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Jim Watson/AFP via Getty Images

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Elon Musk seemed to throw another wrench in his own deal for Twitter on Friday, but an expert on corporate law and M&A says walking away, for Musk, isn’t as simple as paying a $1 billion breakup fee.

Musk said on Twitter that his acquisition of the platform was “temporarily on hold” pending details about a calculation on the amount of Twitter’s fake accounts. He referred to a disclosure earlier this month that fewer than 5% of monetizable daily active users were fake or spam accounts. Musk followed up the post with a clarification: “Still committed to acquisition.”

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Twitter didn’t return a request seeking comment. Tesla didn’t return a request to make Musk available for comment.

Brian Quinn, a professor at Boston College Law School, told Barron’s that for Musk to successfully walk away from the deal, he would need to prove revelations about bots and how Twitter disclosed their presence among its user counts had a “material adverse effect” on the firm.

“These kinds of claims tend not to be strong,” Quinn says. “So there’s a lot of bravado, a lot of back and forth, but they tend not to be strong. You do find people renegotiating prices downward, but not by a whole lot.”

Musk’s comments follow a broader slide for technology stocks, which likely would have included Twitter had there not been a deal at $54.20 in place. Quinn says that though potential acquirers often have buyer’s remorse after signing a deal shortly before a market slide, the way the merger agreement is structured, that doesn’t count for anything. He says if Musk tries to walk away, Twitter has the option to take Musk to court instead of accepting a $1 billion breakup fee.

If Twitter can prove to a Delaware court that Musk’s financing is still in place, the court could issue an order for specific performance that would compel Musk to close the merger, Quinn says.

“A Delaware court that looks at this merger agreement will give an order for specific performance if this deal is capable of being closed,” Quinn says. “And if Musk just says ‘I’m not going to do it,’ they will get the order and they’ll force him to close.”

Merger arbitrage traders are still skeptical. Twitter stock fell 9.5% in Friday trading. At $40.80, shares are off 25% from the deal price Musk agreed to, implying traders don’t believe a deal is a sure thing, at least at $54.20.

Write to Connor Smith at [email protected]


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