The world's richest man told the social media company he wouldn't be buying it. The company plans to go to court to enforce the deal's closing at the agreed upon price and terms.
Predicting how the drama will end isn't easy with the dealmaker involved. There are eight possibilities.
In theory, this may be the best option for everyone, with Musk agreeing to pay the contract's $1 billion termination fee and the company continuing at a lower valuation. When he said that he would be asking if we could just let this whole ugly episode blow over if he were still on the board, he seemed to back away from that path.
If the board allows Musk to walk, it could be in violation of its fiduciary duty.
The legal argument is that Musk locked himself into buying the company. Allowing him to walk away after only paying a fee would likely push the share price even lower. They are trading at a significant discount as investors wonder if and when a deal will happen. The stock price on Friday was $36.83.
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." It's not possible forTwitter to do that.
There is no precedent for a judge to uphold a specific performance clause. Judges can force buyers to close deals even if they don't like them.
The Delaware Chancery Court ruled in 2001 that Tyson Foods had to buy IBP at the previously agreed upon price of $30 a share. Tyson tried to pull out of the deal after the financial performance of both companies fell after the deal was signed. Tyson was forced to acquire IBP at its original agreed upon price after a judge decided Tyson couldn't just walk away because of buyer's remorse. Tyson is the owner of IBP today.
Tyson Foods Inc., sign at Tyson headquarters in Springdale, Ark.If the deal is enforced, it could be the best case scenario for investors, but it could also leave the company with a volatile future. If Musk doesn't want to own the company, forcing it upon him may lead to another sale, more leadership changes, and an employee base caught in a swirl of uncertainty for years.
It is possible that a judge would choose to have Musk pay damages rather than enforce ownership, especially since Musk has a history of disobeying government rules and regulations. If Musk doesn't want to buy the company, he could make an ownership transition so hard that it would be brutal.
A judge could order Musk to pay billions of dollars in damages if he were to take ownership of the company. It is up to the court to decide the amount of damages.
In this case, Musk would pay a $1 billion break-up fee and billions more in a settlement with the social network. It would have to be enough for the board to argue that it was the right decision to take the money rather than pursue litigation.
Musk could walk away from the company without having to pay a fee if he proves that he was lied to by the social networking site. After signing the merger agreement, Musk claims that the company hasn't complied with its contractual obligations.
Musk argued that the company didn't give enough evidence to show that its accounts are less than 5% of all accounts.
Musk and his lawyers wrote in the filing that there were indications that several of the public disclosures about the mDAU were false or misleading.
Musk might be trying to negotiate a lower price for the company. The market and some media and tech stocks have fallen in value since April 25, when Musk agreed to buy the micro-messaging service. The social media peer is down a lot.
It is possible that Musk would agree to a lower price in order to adjust for the market correction.
It is possible that another company could swoop in and buy the company at a lower price than it is currently worth. The board could argue that the deal gives more certainty.
It's more likely that another buyer will buy the company if litigation ensues. It would be out of the picture for Musk to be out of the picture as well.
There are no buyers interested in buying the social network.
Musk claims the board in a material breech.
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