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Twitter Officially Sues Musk To Force Deal Completion

Tyler Durden's Photo
by Tyler Durden
Tuesday, Jul 12, 2022 - 10:44 PM

As fully expected, Twitter has officially sued Elon Musk to force the billionaire to complete his $44 billion acquisition of the company.

As The NYTimes reports, Twitter sued him in Chancery Court in Delaware.

The complaint reads...

Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests.

Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, 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.

Twitter brings this action to enjoin Musk from further breaches, to compel Musk to fulfill his legal obligations, and to compel consummation of the merger upon satisfaction of the few outstanding conditions.

Here are some highlights courtesy of Reuters:

“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.”

“After the merger agreement was signed, the market fell. As the Wall Street Journal reported recently, the value of Musk’s stake in Tesla, the anchor of his personal wealth, has declined by more than $100 billion from its November 2021 peak. So Musk wants out.”

“Musk’s exit strategy is a model of hypocrisy.”

“Musk’s strategy is also a model of bad faith.”

“Finally, and critically, Twitter negotiated for itself a robust right to demand specific performance of the agreement’s terms that encompassed the right to compel defendants to close the deal, and ensured that Musk personally was bound by that provision (among others)”

“Defendants, including Musk, have a “hell-or-high-water” obligation to close on their financing commitments for the transaction.”

“The risk of market decline, which was Musk’s alone to bear under the merger agreement, materialized.”

“Musk wanted an escape. But the merger agreement left him little room. With no financing contingency or diligence condition, the agreement gave Musk no out absent a Company Material Adverse Effect or a material covenant breach by Twitter. Musk had to try to conjure one of those.”

“Swift remedial action in the form of specific performance and injunctive relief is warranted.”

And here is why anything you tweet may and will be used against you in a court of law:

Read the full complaint below:

The court will determine whether he remains on the hook for the purchase or whether Twitter violated its obligation to provide Mr. Musk with data he requested, entitling him to walk away.

* * *

As we detailed yesterday, the twitter court trial/legal settlement drama began its dismal lifecycle when Twitter's law firm Wachtell Lipton lobbed its first official response to the Friday afternoon blockbuster from Elon Musk in which the world's richest man decided he had had enough of toying with Twitter and decided to announce the termination of his plans to buy the social network.

Well, not so fast (of course): according to Wachtell which argues that Musk's termination "is invalid and wrongful, and it constitutes a repudiation of their obligations under the Agreement" and adds that "contrary to the assertions in your letter, Twitter has breached none of its obligations under the Agreement, and Twitter has not suffered and is not likely to suffer a Company Material Adverse Effect."

And since the the "termination is invalid for the independent reason that Mr. Musk and the other Musk Parties have knowingly, intentionally, willfully, and materially breached the Agreement, including but not limited to Sections 6.3, 6.8, and 6.10 thereof", the "Agreement is not terminated, the Bank Debt Commitment Letter and the Equity Commitment Letter remain in effect, and Twitter demands that Mr. Musk and the other Musk Parties comply with their obligations under the Agreement, including their obligations to use their respective reasonable best efforts to consummate and make effective the transactions contemplated by the Agreement."

The full letter from Wachtell Lipton's William Savitt below (link):

Re:    Purported Termination of Agreement and Plan of Merger

Dear Mr. Ringler:

This letter is sent on behalf of Twitter, Inc. (“Twitter” or “the Company”) in response to your July 8, 2022 letter, in which X Holdings I, Inc. purports to terminate the Agreement and Plan of Merger (the “Agreement”) by and among Twitter, X Holdings I, Inc. (“Parent”), X Holdings II, Inc. (“Acquisition Sub”), and Elon R. Musk (together with Parent and Acquisition Sub, the “Musk Parties”). Capitalized terms used here and not otherwise defined have the meanings ascribed to them in the Agreement.

Mr. Musk’s and the other Musk Parties’ purported termination is invalid and wrongful, and it constitutes a repudiation of their obligations under the Agreement. Contrary to the assertions in your letter, Twitter has breached none of its obligations under the Agreement, and Twitter has not suffered and is not likely to suffer a Company Material Adverse Effect. The purported termination is invalid for the independent reason that Mr. Musk and the other Musk Parties have knowingly, intentionally, willfully, and materially breached the Agreement, including but not limited to Sections 6.3, 6.8, and 6.10 thereof. The Agreement is not terminated, the Bank Debt Commitment Letter and the Equity Commitment Letter remain in effect, and Twitter demands that Mr. Musk and the other Musk Parties comply with their obligations under the Agreement, including their obligations to use their respective reasonable best efforts to consummate and make effective the transactions contemplated by the Agreement (including by taking all steps necessary to obtain a favorable outcome under the United Kingdom’s National Security and Investment Act 2021), the Bank Debt Commitment Letter, and the Equity Commitment Letter. As it has done, Twitter will continue to provide information reasonably requested by Mr. Musk under the Agreement and to diligently take all measures required to close the transaction.

Twitter reserves all contractual, legal, and other rights, including its right to specifically enforce the Musk Parties’ obligations under the Agreement.

 
Sincerely,

William Savitt
Wachtell, Lipton, Rosen & Katz

This is just the obligatory next step before Twitter sues Musk in Delaware Court of Chancery, where the outcomes are four:

  1. Musk prevails, and gets away with terminating the deal without paying anything.

  2. Twitter prevails, Musk is forced to pay $1 billion in "termination fee" damages for breach of contract.

  3. Twitter prevails, Musk is ordered to pay $44 billion in specific performance, and ends up buying Twitter at the original purchase price.

  4. Twitter and Musk settle for a purchase price somewhere between $54.20 and $30.00

We believe "4" is the most likely conclusion to this soap opera, even if Musk is confident that 1 (or perhaps 2) is the only outcome.

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