Twitter Stock Trading Halted After Stock Soared On Reports Elon Musk Would Proceed Withto buy the company after months of legal battles.
For the second time, Musk offered to buy the San Francisco company for $54.20. The shares were up nearly 13% at $47.95 before trading was halted.
Bloomberg News reported Tuesday that Musk made the proposal in a letter to Twitter, according to people familiar with the case who were not identified. The Wall Street Journal also said that Tesla’s CEO had decided to go ahead with the acquisition.
Musk has been trying to back out of the deal for several months after signing to buy the social media platform in April. Shareholders have already approved the sale. Musk claimed that Twitter underestimated the number of fake accounts on its platform, and Twitter sued when Musk announced the deal was off.
Neither Twitter nor Musk’s lawyers responded to messages seeking comment Tuesday.
The trial seeking to force Musk to buy Twitter will begin in Delaware Chancery Court on October 17.
Uphill legal battle
Musk’s argument for walking away from the deal is largely based on the accusation that Twitter misrepresented the way it measures the magnitude of “spam bot” accounts that are useless to advertisers. But most legal experts believed he faced an uphill battle convincing Chancellor Kathaleen St. Jude McCormick, the court’s chief judge, that something changed since the April merger deal that warrants rescinding the deal.
Legal experts have generally said that Twitter had the upper hand in the lawsuit, which Twitter filed in July. Twitter is seeking “specific performance” of the contract with Musk, meaning he would have to go through with the purchase at the original price. The contract Musk signed also has a break fee of $1 billion.
“This is a clear sign that Musk recognized in addressing the Delaware Court that the chances of winning against the Twitter board were highly unlikely,” Wedbush analyst Dan Ives wrote in a note to investors. “Being forced into the deal after a long and ugly court battle in Delaware was not an ideal scenario, and instead accepting this path and moving forward with the deal will avoid a major legal headache.”
Among the remedies that would favor Twitter is a court order to go ahead with the deal. The Chancery Court last year forced private equity firm Kohlberg & Co. to go ahead with a $550 million purchase of DecoPac, a Minnesota-based company that calls itself the world’s largest provider of decorating supplies. of cakes for decorators and professional bakeries. The case was emblematic of the court’s common, though not uniform, determination to enforce buyers’ contractual obligations.
Other options include Musk being forced to pay the breakup fee each side agreed to if he is held responsible for the deal falling through. Or he could have to pay more without buying the company for $44 billion.
Legal experts have said Delaware courts have been tough in interpreting what counts as valid reason to back out of a settlement. The gap between what Musk knew about Twitter when he made the offer in April and the company’s current state must be huge, and there is little evidence for that, a lawyer said.