Even though he doesn't want to buy the company, he can't just walk away from the contract. A judge in Delaware will have to rule on the case of the co- founder of the electric car company. He won't be easy if history is a guide.
Taylor said that the company would fight in the Delaware Court of Chancery to force Musk to follow through on his agreement. According to people familiar with the matter, a filing could be imminent.
If the judge rules against Musk, he could be forced to pay $54.20 a share, as he said he would in the agreement. Musk would have to pay a $1 billion break-up fee if a ruling in his favor were to be made. It is possible that both sides reach a settlement that will allow Musk to make the acquisition at a lower price.
The judge in this case will look closely at the 73-page purchase agreement and the court has rarely sided with parties who are trying to bail on acquisition commitments.
There are automated user accounts known as bot and how they are used on social media. He claims that the social media platform is teeming with fake accounts and that they make up less than 5% of users. In his Friday filing with the US Securities and Exchange Commission, Musk said that the failure to hand over details on the number of bots amounted to a company material adverse effect.
An MAE is described by a University of Pennsylvania law professor as an "unexpected, fundamental, permanent" negative development that can't be fixed.
More about the legal brawl can be found here.
There was only one case in which a clear MAE emerged, and that was the decision of Fresenius to walk away from the Akorn acquisition.
Robert Profusek is the head of the mergers and acquisitions department at Jones Day. He said in an interview that the lawyers' argument that you don't do diligence and test things out later isn't the way things work in big ticket M&A.
Delaware chancery court judges are known for their expertise in interpreting legal jargon that can be confusing to the lay person in a merger and acquisition accord.
All information concerning the business, properties and personnel of the company and its subsidiaries must be given to Musk immediately. Musk claims that management didn't meet their duties in relation to the details of the accounts.
The company said it gave over a lot of data to its users. According to executives, the company manually reviews thousands of accounts each quarter to determine the 5% bot tally, and estimates that the actual number is well below the threshold disclosed in filing. The company uses internal data, such as examining phone numbers or Internet Protocol addresses, to determine if an account is run by a human.
Any change, event, effect or circumstance which, individually or in the aggregate, has resulted in or would reasonably be expected to result in a material adverse effect on the business, financial condition or results of operations of the company is defined as a company material adverse effect.
Why does MAE matter to Musk?
The parties are likely to reach an out-of- court settlement. Charles Elson is a retired University of Delaware professor and former head of the school's Weinberg Center for Corporate Governance.
This is not a material adverse change. It's just a negotiating position. He knows that the Delaware courts are not very fond of that type of deal.
According to people familiar with the matter, Wachtell, Lipton, Rosen & Katz has been hired to press its case. People who did not want to be identified said that the social media company plans to file a lawsuit this week. The Delaware Chancery Court gained access to lawyers when it hired Wachtell.
Musk has hired a law firm. He was represented by the firm in an ongoing shareholder lawsuit over his failed attempt to take the company private.
People close to the company say that the employees of the company are dour regardless of the outcome of the litigation. Several employees have complained about a lack of leadership and vision-setting from the top, including the Chief Executive Officer, according to people who asked not to be named.
Both of the likely outcomes are not good for many people on the social network. The company will be run by an unpredictable and reluctant owner if the case goes in their favor. If Musk succeeds in ending the deal, the stock of the company will likely plummet and the staff will suffer another blow.
Several people are leaving or planning to leave because they don't want to work for Musk. After a question-and-answer session in which Musk showed up late, some employees decided to leave.
With the help ofKatie Roof.
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