Like countless other contract disputes, Twitters (TWTR) has clashed with Elon Musk over Tesla’s CEO (TSLA)’s attempt to step out of his $ 44 billion deal to acquire the social media company in languages that may be open to several interpretations.
Do not expect Twitter or Musk to admit that legal entities that lay down the terms of their merger agreement leave the slightest ambiguity about their respective rights.
After mocking Twitter publicly with the threat of a hostile takeover, and forcing the board’s hand with a premium too good to refuse, Musk agreed to the sale based on a merger agreement drawn up by some of the most expensive lawyers one can buy for money. Within a few weeks of signing the contract, Musk hinted cold-blooded and terminated the deal, citing suspicions that Twitter̵[ads1]7;s platform suffered from a higher prevalence of fake accounts than the less than 5% reported.
Twitter claims in a complaint against Musk that the agreement allows it to reject Musk’s claims and force him to buy the company. Musk’s lawyers, for their part, say he can drop the deal altogether because Twitter’s refusal qualifies as a material breach – and possibly as a “significant negative effect” that will cancel the deal. In a letter of resignation on July 8, Musk’s lawyers called the fine data “fundamental to Twitter’s business and financial results” and necessary to complete the deal.
Twitter says instead that Musk uses the bot request as a pretext to withdraw from the agreement, and notes that the Tesla boss repeatedly downgraded Twitter on the platform itself. Twitter also notes that Musk’s premium bid at $ 54.20 per share is much higher than the stock’s recent value – the company’s share was traded at $ 37.74 at the close of trading on Friday.
“Room for argument”
Despite the competing claims, the merger document itself does not explicitly mention fine data. It spells out broad concepts about Musk’s right to access information until the deal is terminated, and Twitter’s right to withhold it.
“There’s definitely going to be room for argument,” Professor Lawrence A. Hamermesh of Widener University at Delaware Law School told Yahoo Finance.
A high incidence of fraudulent accounts will threaten Twitter’s revenue streams – advertisers pay to reach real, human account owners, not robots. A bot rate higher than Twitter claims can scare investors, advertisers and possibly even users, because robots can both reduce real ad impressions and spread misinformation.
As of the fourth quarter of 2021, the company’s regulatory records state that fake or “spam bot” accounts represent less than 5% of the user base.
For Musk, his lawyers argue that under one provision of the contract, Twitter was on the hook to hand over enough data to enable him to independently assess the existence of fake accounts.
To support his claim, lawyers are quoting his contract language as saying that Twitter must give him “reasonable access” to Twitter’s “properties, books and records,” and immediately provide him with “all information regarding Twitter’s business, properties and personnel” for anyone “reasonable business purpose related to enforcement “(emphasis added) of the transaction.
“This section gives Musk some rights to information,” Hamermesh said. “But it is not carte blanche, free access to information.” The language, he explains, presents obstacles for Musk to show that he needs the data for a “reasonable purpose” that is “related” to closing the deal.
“What is a reasonable business purpose? What is related?” he asks and explains that these questions, if the dispute is resolved in court, will be up to a judge to decide. Still, he says: “I’m sure there’s plenty of room to argue both sides of it.”
Twitter will probably claim that the type of information Musk requires is not covered by the contract language, and that Musk could have requested data related to robots before joining the merger agreement, Hameresh said.
“It means what the actual applicant decides it means”
To make matters worse, Twitter also cites imprecise contract language to claim that it is free to reject Musk’s requests.
The company points to a provision that allows it to withhold information if it states in its “reasonable assessment” that disclosure of the data would “cause significant competitive harm” to Twitter if the agreement is not terminated. In other words, Twitter may decide that there is too much risk of competition harm to Twitter if Musk fails to buy the company and is left with tools to estimate false account data.
That language also allows for interpretation. What is “reasonable?” What is “significant?”
Senior Lecturer Donna Hitscherich at Columbia Business School says there is a risk for both Twitter and Musk to sort these issues through litigation, because the judge must interpret the meaning of ambiguous terms in the merger agreement.
“In reality, it means what the actual applicant decides it means,” Hitscherich said.
In addition to having a right to flat out reject Musk’s requests, Twitter says the agreement further isolates it from handing over the data because Musk waived his right to due diligence – the right to obtain certain proprietary Twitter information. The very absence of a due diligence condition in the contract, they claim, means that Musk has no right to demand fine data as a condition for buying the company.
Musk’s lawyers claim that he did not actually give up the right to review the data.
Unless Twitter and Musk settle their dispute, Delaware Chancery Court Chief Justice Kathaleen McCormick will be left to interpret the contract. Before that, Musk will have a chance to respond to Twitter’s allegations that he tried to refute the deal in response to the company’s complaint.
Alexis Keenan is the legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTubeand reddit.
Find stock market quotes and the latest business and financial news
For guidance and information on investing and trading stocks, check out Dinner