Twitter has been thrust into the awkward position of going to court to enforce a takeover it wasn’t even sure it wanted in the first place.
But with its stock in a nosedive – falling another 11.3% Monday after Elon Musk moved Friday to back out of the $44 billion deal – Twitter’s board is expected to file a lawsuit in Delaware Chancery Court as soon as this week to keep the billionaire Tesla CEO on the hook.
The board has a responsibility to get the best value for shareholders, experts say, and right now that path appears likely to involve a lengthy legal battle to compel Musk to fulfill the agreement.
The monetary stakes are clear: Twitter shares fell to their lowest point in two months on Monday after Musk announced his intentions in a regulatory filing.
The stock closed at $32.67, nearly 40% below the $54.20 a share price that Musk agreed to pay in April.
“It puts the Twitter board in a tough position,” said David Larcker, a professor at Stanford’s graduate school of business who studies corporate governance.
“Either the court is going to force him to buy the company, the court is going to let him off the hook with a buyout – or something else is going to happen.”
Another option could include a possible renegotiation or settlement.
The would-be deal has been tumultuous from the beginning. Musk bought a stake in the company, then launched a hostile takeover bid.
It initially appeared as though the company might pass, but the board was persuaded that a sale would be in the best interest of the company and its shareholders.
In the months since, Musk has criticized Twitter on its own service, and the company’s workforce has been rocked by turmoil as many employees voiced concerns he would fundamentally alter operations and roll back content safeguards that had been put in place over years.
Ultimately, Musk’s decision to drop the bid stems from his insistence the company is withholding information on bot accounts; Twitter contends it has turned over significant information.
Legal experts have said that it will be difficult for Musk to just walk away from the deal with that reasoning. He could be on the hook for a $1 billion breakup fee, and potentially more after court proceedings.
Twitter has retained a prominent New York law firm to help it complete the sale.
The dropping stock price, uneasy workforce and general uncertainty plays into a “worst case scenario” for the company, experts say, even if it prevails in court because it opens the company to new financial risks.
Twitter could be forced to make key business metrics public, inviting skepticism from Wall Street about the company’s health.
Musk appeared to be of the same mind, tweeting Monday just after midnight: “They said I couldn’t buy Twitter. Then they wouldn’t disclose bot info. Now they want to force me to buy Twitter in court. Now they have to disclose bot info in court.”
The tweet included a meme with photos of Musk laughing.Carl Tobias, a law professor at University of Richmond, believes the suit will end in a settlement, and “sooner rather than later, just because everybody is dissatisfied on both sides.”
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