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Business

"I made an offer," Elon Musk tweeted in April. (Photo illustration by Jakub Porzycki/NurPhoto via Getty Images)

By Savannah Young Leaders Staff

Savannah Young

News Writer

Savannah Young is a news writer for Leaders Media. Previously, she was a digital reporter for WATE Channel 6 (ABC)...

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Updated Jul 19, 2022

The Latest Twist in the Elon Musk / Twitter Saga

Can Elon Musk walk away from his $44 billion Twitter deal?

In April, Elon Musk announced that he held a 9.2 percent stake in Twitter, which made him the social-media company’s largest shareholder. Twitter’s stock price soared 25 percent after the announcement.

Later that month, the billionaire entrepreneur offered to buy all of Twitter at $54.20 per share—equaling about $44 billion. He said he originally invested in the platform because he believes it is failing in its potential to be the leading platform for free speech around the globe. In fact, he asked his 2 million followers if Twitter adhered to principles of free speech, and 70 percent said “no.” 

Then last week, Musk decided to back out of the deal, claiming there were too many fake accounts on the platform. Twitter has since sued Musk in Delaware Court of Chancery to complete the deal. The likely outcomes are 1) the court forces Musk to complete the purchase, 2) the court allows Musk to end the deal, but forces him to pay a $1 billion breakup fee, or 3) the court allows Musk to walk away without having to pay any fee or damages.

In the lawsuit, Twitter lawyers say, “Musk apparently believes that he—unlike every other party subject to Delaware contract law—is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away. This repudiation follows a long list of material contractual breaches by Musk that have cast a pall over Twitter and its business.”

Whitney Tilson, founder and CEO of Empire Financial Research and a close follower of this deal, contends that Musk will be forced to buy the company. He says that if Musk is able to get out of this “air-tight” contract, it will bring chaos and make others question the validity of contracts in general.

He explains how he believes this case is huge and will be talked about for years to come. It could bring havoc because, Tilson says, “It goes to the core of our business legal system, which is rooted in the enforceability of contracts.” He thinks the presiding Chancellor Kathaleen McCormick realizes the severity of this case and will make an example of Musk.

In fact, last year Chancellor McCormick ordered a private equity firm that wanted to back out of its own purchase of a company because of its falling value to complete the deal nonetheless. “This court has not hesitated to order specific performance in cases of this nature,” Chancellor McCormick wrote.

“Rather than being intimidated by Musk, Chancellor McCormick is going to be eager to make an example of him,” Tilson says, “to rein in a rogue actor and send a clear message to the world that no individual, even the richest in the world, is above the law.”

And she will put teeth in her ruling, he argues, by ordering the bank holding Musk’s Tesla shares to sell enough of his holdings to get the $44 billion needed to honor the purchase agreement. 

Others think differently and believe Musk will walk away largely unscathed. 

Two corporate-governance experts opined in The Wall Street Journal that if Musk doesn’t want to buy Twitter, it doesn’t make much sense for the court to force him to do so. They say Twitter may be worse off if he, a disgruntled suitor, buys it at this point.

They say that the court is much more likely to make Musk pay the breakup fee than force him to buy the company. “But it isn’t clear he will have to pay that much. Breakup fees are supposed to reflect damages caused by a breach of contract. They aren’t supposed to act as a penalty. Given that Twitter isn’t obviously worse off by $1 billion—if at all—a court might balk at imposing such a high fee,” they argue.

The trial is currently scheduled to begin in October, but Musk’s legal team is pushing for a February start date.

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