Elon Musk may be trying to walk away from his $44 billion deal to buy Twitter, but the saga is far from over.
First, backing out isn't that simple: The terms of the deal require Musk to pay a $1 billion termination fee, a fee Musk doesn't think he should have to pay, Insider reported. Then, Twitter apparently still wants the deal to close. The company hired a major law firm to sue Musk, and the board has said in a statement that it was "committed to closing the transaction at the price and terms agreed upon."
All of that means that Musk and Twitter will have to gear up for what's sure to be a legal battle royale — one with at least three possible outcomes:
1. Musk wins
A letter sent from Musk's lawyers argues that Twitter failed to comply with its contractual obligations to disclose how many fake accounts there are on Twitter's platform. The letter accuses Twitter of ignoring or outright refusing Musk's requests for information about Twitter's users and its business practices, and of making "false and misleading representations" about the number of bots there are on Twitter.
Three legal experts told Insider that Musk's triumph in court is one of the least likely outcomes to the court battle.
"Musk's best argument is a tough one," University of Michigan Ross School of Business Professor Erik Gordon told Insider. "He can't win on anything in the actual acquisition agreement because it doesn't leave room for many loopholes."
Gordon said Musk's best opportunity could be to argue for fraud, which would mean "he'd have to show that Twitter not only deliberately misrepresented the number of bots on its platform to his detriment, but that he had good reason to enter the agreement without questioning that data."
Ann Lipton, a business law professor at Tulane University Law School, told Insider she also didn't like Musk's chances: "Unless Elon Musk pulls a rabbit out of a hat, his legal claims are quite weak," she said.
Meanwhile, Matteo Gatti, a law professor at Rutgers Law School, told Insider that if a judge sides with Musk, he would walk away from the deal, scot-free, without having to buy Twitter or pay the $1 billion fee.
2. Twitter wins
Twitter is in a stronger position to win in court, several experts said, but the company has reasons not to prolong a legal battle, including the health of its business, whose stock price could suffer further in a prolonged court battle.
"It's going to get pretty tricky, pretty fast for Twitter," said John McClaine, a portfolio manager at Brandywine Global Investment Management. "There's a reasonable likelihood that in litigation, Twitter is forced to disclose information that could further negatively impact its stock price." Twitter had fallen nearly 10% on Monday alone — trading around $33.20 a share, far less than the $54.20 Musk had put on the table.
The longer this saga drags out, the worse it is for Twitter, Gatti said.
There are two possible outcomes if Twitter wins in court, Gatti said: One is a settlement, which would see Musk paying the $1 billion fee and then some; two is Musk is forced to buy the company at the original price.
"Damages are probably the better course of action from the company's perspective," Anat Alon-Beck, a law professor at Case Western Reserve University, told Insider by email. "We know about the $1 billion — it's entirely possible that Twitter could get even more for all the damages Musk caused the company."
Gordon echoed that Twitter is unlikely to let Musk walk away without paying substantially more than the $1 billion breakup fee. The company would be unable to prove it had done its fiduciary duty if it allowed Musk to walk away after paying less than 2.5% of the entire value of the deal, he said.
3. They reach an agreement
A settlement or price negotiation could be the most favorable resolution for both parties in a court battle that could take as long as three years, experts said. Proceedings will be held in Delaware Chancery Court because Twitter is domiciled there, as are many US companies because of the state's laws that are seen as corporation-friendly.
"Twitter has a strong case," Gordon said. "They have a strong contract, but you never know what will happen in court." Because of that uncertainty, Twitter might very well agree to be purchased for a lower price than had been agreed, Gordon said.
A similar situation occurred in 2020, when the jeweler Tiffany & Co. agreed to sell to French luxury goods conglomerate LVMH for a reduced price of $16 billion, a $425 million discount.
The renegotiated price is likely to be a major pain point, however. Angelo Zino, an analyst at CFRA Research, said Musk would likely want to slash at least 20% off the deal — a cost cut that Twitter is unlikely to go for.
"Right now they can't risk taking a settlement that wouldn't be defensible in court," Gordon said, noting Twitter is likely to face a slew of shareholder lawsuits in the wake of its battle with Musk. "The existing contract is so strongly favorable to Twitter that they can't give a discount greater than 5 to 10%."
Ultimately, Musk is a wild card.
"Legally, this isn't a hard case," Lipton said. "Most cases of this sort have a much stronger argument, but Elon Musk is always an X factor."
