Will a Delaware court force an unwilling buyer in the Tesla mogul to follow through with a $44 billion takeover of Twitter despite his actions leading up to the litigation?
Elon Musk has spent the past two months dragging Twitter through the mud. He divulged internal company data about its bot check sample size. He claimed chief executive Parag Agrawal misrepresented Twitter’s daily user estimate. He even accused the company of lying about the number of spambots and fake accounts on the platform — going as far as to urge the Securities and Exchange Commission to investigate disclosures regarding the issue.
Twitter responded July 12 by suing Musk in the Delaware Court of Chancery after he announced in a letter that he was abandoning a $44 billion takeover of the social media platform, arguing he’s required to consummate the deal.
In its lawsuit against the Tesla mogul, the platform devotes dozens of pages to calling out his public disparagement of the company. Twitter’s lawyers describe his behavior as the “model of hypocrisy” and “bad faith.” They say he sunk Twitter’s value.
Yet, Twitter’s suit ends by seeking to force Musk to buy the platform despite the “disdain he has shown for the company.”
Several legal observers note that Twitter has the upper hand in court. After all, Musk agreed to specific performance, a remedy forcing a party to comply as closely as possible with the terms of a contract, and it doesn’t appear as if Twitter violated the merger agreement. But the case puts the court in the awkward position of possibly forcing an unwilling buyer who’s actively trying to sabotage a deal to purchase a multibillion-dollar company.
“There’s a real paradox at the heart of this litigation,” says Todd Henderson, professor at the University of Chicago Law School.
Greg Varallo, a partner at law firm Bernstein Litowitz Berger & Grossmann, who regularly argues cases in the Delaware court, observes, “It’s a little weird to have parties that don’t want to get married and say, ‘No you have to get married.'”
Specific performance is sparingly used and typically reserved for cases when there’s no other choice. Henderson calls it the “ultimate act of coercion.” If Musk is ordered to follow through on his bid to acquire Twitter, he compares it to a worker being forced to comply with a contract to paint a house. “Instead of sitting back in your house and knowing he’ll do a good job because his reputation is at stake, now I’m worried that he won’t do a good job because he’s being coerced,” Henderson notes.
Larry Hamermesh, professor at Delaware Law School, says the court might “feel a little funny about ordering specific performance for a buyer that doesn’t want to do [a deal] at all and is maybe interested in tearing apart the company.”