- Musk informed Twitter he is terminating his deal to acquire the company, citing material breach.
- Twitter intends to take Musk to court to force him to buy the company for $44 billion.
- There are many ways the Musk-Twitter conflict could end.
In the latest twist in the Elon Musk-Twitter saga, the world's richest man told the social media company he no longer intends to buy it. Twitter chairman Bret Taylor promptly fired back that the company intends to go to court to enforce the $44 billion deal's closure at the agreed upon price and terms.
Predicting how the drama will ultimately conclude is difficult, especially with the mercurial dealmaker involved. It's impossible to guess all of the different permutations, which could eventually involve secondary issues such as financing. But here are eight possible scenarios.
In theory, this may be the cleanest option for everyone — no litigation, Musk agrees to pay the contract's $1 billion termination fee and Twitter carries on, albeit at a valuation significantly lower than $44 billion. This is the path Twitter co-founder Ev Williams appeared to back when he tweeted that he would be asking if "we can just let this whole ugly episode blow over" if he were still on the board.
The problem is the board could be breaching its fiduciary duty if it lets Musk walk − and Taylor's response suggests Twitter has no intention of doing that.
Twitter also has a strong legal argument that Musk locked himself into buying the company for $54.20 a share. Allowing him to walk away after only paying the breakup fee would probably push Twitter's shares even lower. They've already been trading at a significant discount as investors question if and when a deal will happen. On Friday, the stock closed at $36.81.
"They can't just say, 'Alright, let's spare us the pain, Elon, we'll let you knock the price down by $20 per share, or we'll settle, we'll agree to walk away if you just pay the billion-dollar break fee," said Ann Lipton, a professor of corporate governance at Tulane Law School. "Twitter is just not in a position to be able to do that."
There's no precedent for a judge upholding a so-called "specific performance" clause to enforce a contract for a deal as large as $44 billion. But there are examples of judges forcing buyers to close deals even when they don't want to.
In 2001, the Delaware Chancery Court ruled Tyson Foods had to buy IBP Inc., then the largest U.S. beef distributor, at the previously agreed upon price of $30 a share. Tyson had tried to pull out of the deal after both companies' financial performance declined after the deal was signed — just as Musk is trying to walk away from Twitter. A judge decided Tyson couldn't just walk away because of buyer's remorse, and the company was forced to acquire IBP at its originally agreed upon price, which valued IBP at $3.2 billion. To this day, Tyson owns IBP.
Having the deal enforced could be the best case scenario for Twitter investors, but could leave Twitter and its employees facing a volatile future. If Musk truly no longer wants to own Twitter, forcing it upon him may lead to yet another sale, more leadership changes, and an employee base caught in a whirlwind of uncertainly that could persist for years.
As Vanderbilt law professor Morgan Ricks tweeted, it's possible a judge would choose to have Musk pay damages rather than enforce ownership, especially with Musk's track record of flouting government rules and regulations. A judge may be concerned that if Musk doesn't want to buy Twitter, he could make an ownership transition so difficult that the collateral damage would be brutal.
In this case, Musk would likely pay his $1 billion breakup fee and billions more in a brokered settlement with Twitter. The settlement would likely have to be enough that Twitter's board would be able to argue to investors it made the right fiduciary decision to take the settlement money instead of pursuing litigation.
Should Musk prove that Twitter provided him false information, and that the true details have a materially adverse effect on the company, he could walk away without having to pay a breakup fee. In his filing on why he's terminating the deal, Musk claims Twitter hasn't complied with its contractual obligations after it signed the merger agreement.
Musk's primary argument is that Twitter didn't provide enough detail or evidence to show its spam accounts are 5% or less of all accounts, as the company claims it estimates them to be.
"All indications suggest that several of Twitter's public disclosures regarding its mDAUs [monetizable daily active users] are either false or materially misleading," Musk and his lawyers wrote in the filing.
As Bloomberg's Matt Levine explained, Musk may also be able to get out of the deal if a judge rules Twitter didn't provide him with enough information as it promised it would. That would make the spam account issue moot.
Musk's lawyers also tacked on a third argument, saying Twitter didn't "seek and obtain consent before deviating from its obligation to conduct its business in the ordinary course" in the firing of several employees. But that seems unlikely to determine the case one way or another.
In the past few months, Musk has agreed to join Twitter's board, decided not to join Twitter's board, put the Twitter deal "on hold" and revised the financing on the deal. Now he says he doesn't want to buy Twitter anymore.
Given that history, the possibility that he might change his mind again shouldn't be ruled out. Musk could get more information from Twitter about spam accounts, decide he's satisfied and once again say he'll buy Twitter at $54.20 per share.
Musk's motivation for trying to end the deal might be a negotiation tactic to get Twitter to lower the acquisition price. The market, and especially some media and tech stocks, have come down significantly in value since April 25, the day Musk agreed to buy Twitter. Social media peer Snap is down 50% in that period.
It's possible Musk and Twitter could agree to a lower price − likely with a very painful breakup fee to ensure he doesn't try to renegotiate again − to adjust for the market correction.
This may be the most unlikely option of all, but it's possible another company could swoop in and buy Twitter at a lower price than $54.20 per share. Twitter's board could argue that deal provides more certainty than going to court with Musk.
Still, a scenario where another buyer acquires Twitter seems more likely to happen after litigation, if Twitter loses or settles. Then, Musk would be out of the picture, but Twitter will have explored its options to either get the full $44 billion or additional damages.
There are no known buyers interested in buying Twitter.
WATCH: Elon Musk terminates Twitter deal and claims board in material breach