Why did Elon Musk agree to buy Twitter again instead of continuing to argue his claims that Twitter violated the merger agreement by lying about bots? There are a few answers, but “the biggest of all is that he̵[ads1]7;s almost certain to lose [in Delaware Court of Chancery]. And of course, if he loses, he’ll have to do exactly what he just agreed to do, which is to terminate the deal at the original price, law professor Robert Miller told Ars in a phone interview yesterday.
Miller is the F. Arnold Daum Chair in Corporate Finance and Law at the University of Iowa College of Law. “The Delaware Supreme Court and the Delaware Court of Chancery have cited Professor Miller’s articles on material adverse effects, a case the Court of Chancery has described as ‘one of the most difficult cases under Delaware law,’ more than forty times,” his University bio says from Iowa. Musk’s defense against Twitter’s lawsuit hinged heavily on whether he could prove that Twitter had a material adverse effect.
Musk tried to get out of the $44 billion deal by claiming Twitter lied in its estimate that fewer than 5 percent of its monetized daily active users (mDAU) are spam or fake. But his claims appeared to have no solid evidence, and with the scheduled trial less than two weeks away, Miller says Musk probably finally realized his case probably isn’t a winner.
“At this point, I think his lawyers have all the documents that they’re going to get from Twitter, and it’s probably pretty clear that there’s nothing to that allegation,” Miller said. He also predicted Musk would lose over a week ago, when it appeared the Oct. 17 trial would begin as planned.
In a letter to Twitter on Monday, days before he was scheduled for a deposition, Musk offered to complete the deal “provided that the Delaware Chancery Court files an immediate stay of the case … and stay the trial and all other proceedings related to it pending such closure or further order from the court.” A stay would not prevent Twitter from resuming its lawsuit against Musk if he backs out of the deal again.
Musk’s fraud argument was implausible
If Musk actually proved what he claimed, he would be “home free” and not even have to pay $1 billion in the merger breach, Miller said. But Miller called Musk’s central claim implausible.
“If Twitter had been engaged in a gigantic mDAU scam — in other words, if they really knew there was a better way to measure fake accounts than the process they were using, but chose to use it anyway because it produced the numbers they liked, but the real process that they themselves knew was better came back with a number like 15 percent — if he could prove that, he’d be in good shape,” Miller said.
But that scenario would be “comparable to Enron-level fraud,” a “massive securities fraud” in which “anyone involved in the fraud who sold Twitter stock that they received as compensation during the fraud period would be guilty of criminal insider trading.” trade,” Miller said. That “makes it inherently unlikely. Things like this happen occasionally, but they are extremely rare,” he said.
Miller has made presentations on the Musk/Twitter matter to the New York City Bar Association’s Committee on Mergers and Acquisitions several times, including yesterday morning. He also used to be an attorney at Wachtell, Lipton, Rosen & Katz, which represents Twitter against Musk and previously represented Musk and Tesla in other cases.
Experts who spoke to the Financial Times agreed that Musk’s side must have realized during discovery that the case was too weak to go to trial. – I think we were very close to the end of the discovery, and Musk’s lawyers didn’t get what they wanted, Stefano Bonini, an expert on corporate governance at the Stevens Institute of Technology, told the FT. “The judge has not made many concessions to Elon’s team. They submitted requests for an unreasonable amount of data, and the judge ruled that much of what they requested was unnecessary and genuinely confidential.”
In a chirping yesterday Musk wrote: “Buying Twitter is an accelerator to make X, the everything app.”