WILMINGTON: Twitter Inc. has a strong legal case against Elon Musk walking away from his $44 billion deal to acquire the US social media company but could opt for a renegotiation or settlement instead of a long court fight, according to legal experts.
Delaware courts, where the dispute between the two sides is set to be litigated, have set a high bar for acquirers being allowed to abandon their deals. But target companies often choose the certainty of a renegotiated deal at a lower price or financial compensation rather than a messy court battle that can last for many months, experts said.
“The argument for settling at something lower is that litigation is expensive,” said Adam Badawi, a law professor at UC Berkeley. “And this thing is so messy that it might not be worth it.”
Musk’s main claim against Twitter is that the San Francisco-based company breached their deal because it will not share with him enough information to back up its claim that spam or fake accounts constitute less than 5 percent of its active users. Twitter has stood by this estimate but also said it’s possible the number of these accounts is higher.
Musk also said in a letter to Twitter that the company’s misrepresentation of the number of spam accounts might be a “material adverse effect” that would allow him to walk away under the terms of the deal contract.
But legal experts said Delaware courts view MAEs as dramatic, unexpected events that cause long-term harm to a company’s performance. Deal contracts such as the one between Musk and Twitter are so prescriptive that a judge has ruled that an MAE has validly been triggered only once in the history of such litigation — in the case of German healthcare group Fresenius Kabi AG ending its deal for US generic drugmaker’s Akorn Inc. in 2018.
In that case, a court ruled that Akorn’s assurances to Fresenius that it was in compliance with its regulatory obligations were inaccurate. It also found that Akorn had withheld facts about its deteriorating performance that emerged in whistleblower allegations.
