Twitter recorded the first win in its legal battle with Elon Musk. The two parties are headed to court in Delaware over their $44 billion deal to sell the social media company to Musk, the billionaire CEO of Tesla and SpaceX.
Delaware chancellor Kathaleen St. Jude McCormick ruled on today that the case will have a five-day trial in October. That’s much closer to Twitter’s motion for an expedited trial than Musk’s request for it to start next year.
Twitter asked for a four-day trial in the “second half of September,” citing ongoing pressure on its business—with users fleeing, advertisers losing faith, and employees leaving the company—while the deal is in limbo. Musk’s lawyers requested a 10-day trial in February 2023, claiming that “complex, technical discovery” was necessary in order to determine whether Twitter has been lying about its user data in filings with the US Securities and Exchange Commission (SEC).
Twitter’s battle with Musk is, of course, bigger than the date of a trial. The social media company is not only seeking a positive outcome in court but also leverage for a possible settlement with Musk ahead of a trial.
Twitter is suing to enforce the terms of its $44 billion deal to sell itself to Elon Musk. After agreeing to buy the company in April, Musk decided he wanted out earlier this month. But while many cases like this are resolved by the losing party paying damages—money that a court determines would remedy a breached contract—Twitter is suing for “specific performance,” meaning they are asking the court to force Musk to complete his takeover.
Since signing the deal, Musk has made repeated unfounded claims that Twitter is lying in its SEC filings about the portion of its monetizable active daily users (mDAU) that are nonhuman accounts like bots and spam.
But over the Zoom court hearing today, Twitter’s lawyers argued that Musk’s claims are not only without merit but also a stalling tactic. Musk is trying to delay the trial long enough to “wriggle out” of the deal, lawyer Bill Savitt of the firm Wachtell, said. Additionally, Savitt said that even if Musk’s team were to conduct the discovery it claims it needs, it’s reasonable to expect it to do so in time for a trial in the early fall.
Ultimately, the judge concurred with Twitter’s rationale.
Twitter and Musk are headed toward an October trial, which the judge claims will give each party enough time to prepare while being sensitive to Twitter’s ongoing business needs.
There are multiple outcomes that could come from this:
- Twitter and Musk settle and negotiate a lower price for Musk to buy the company
- Twitter and Musk settle and negotiate fee higher than $1 billion for Musk to walk away
- Twitter wins in court and Musk has to buy the company for $44 billion
- Twitter wins in court but Musk only has to pay a $1 billion termination fee
- Musk wins in court by demonstrating that the Twitter’s user base discrepancies exists as he claims and they amount to a “material adverse effect” on the company. He can walk away unscathed.
The win for Twitter increases the social media company’s leverage. Even if it does not want to sell to Musk anymore, the company’s lawyers need to convince Musk that a specific performance ruling is possible in order to settle for an appropriate deal.
In the course of this dispute, Twitter’s board is obligated to seek an outcome that maximizes value for its shareholders. If that’s not specific performance at $54.20 a share, as was initially promised, it will need to get a deal that makes financial sense for its shareholders.