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Elon Musk Squashes Deal with Twitter

*The views expressed in this article do not represent the views of Santa Clara University.

“Photo-still from Ted talk” credit EU News CC BY-NC 3.0

The Influence of Elon Musk

Bill Gates, Warren Buffet, and Jeff Bezos—three names that may come to mind when thinking of the 2,700 billionaires worldwide (World Population Review). In the last decade, however, one billionaire in particular has stolen the limelight from his counterparts—as well as skyrocketed his net worth above the rest.

Why does Elon Musk seem to have the Midas touch? Before diving into how Musk’s promised acquisition of Twitter has turned into a mound of litigation, we will first take a closer look at his unprecedented public influence.

Although Elon Musk is most known for his work as Tesla CEO and founder of SpaceX, he also has a long list of ventures and side hustles that have made an impactful change with just a few words in a tweet.

Dogecoin is a prime example of how his influence can change markets. After Musk tweeted:

“Tesla merch buyable with Dogecoin”,

the crypto skyrocketed 15% (Crypto Potato). In May 2021, he called Dogecoin a


and the price plummeted 35% (Bloomberg). Musk has also released limited runs of products such as flamethrowers, tequila, and ATVs that have sold out instantaneously and are selling for premiums. Consumers seem like they can’t get enough of his products—no matter what they are.

Before Elon Musk expressed his interest in buying Twitter, he made a 2.9-billion-dollar purchase of shares amounting to 9.2% of the company (TechCrunch). Company executives received an official offer from Musk, a cash deal worth 44 billion. Id. All shareholders would receive $54.20 per share and the company would become private. Id. Twitter was trading below that price, so if the board couldn’t come up with an offer better than Musk’s, they had a fiduciary duty to accept Id.

What is the Privatization Process?

Privatization is not a new phenomenon. Many companies, including Hilton Worldwide Holdings, Dell Computer, and Panera Bread, have gone from public to private before. (Investopedia). After the switch, the concerns of shareholders are weakened, leaving the operations to serve the interest of the new, private owner. As a result, companies that have experienced a private buy-out in recent years have consistently been re-registered with the SEC and returned to public trading once the private owner is ready to cash out.

Since the initial stages of his move on Twitter, Musk has made ample public commentary on the company. Musk referred to Twitter as “the de facto public town square” and claimed that the platform undermines democracy and the principles of free speech. (Twitter). If the deal goes through to privatize Twitter, Musk’s clear intent to decrease censorship on the platform will be upheld.

Without public shareholders to restrain changes made to the platform, Musk would be able to make drastic and minor changes without the burden of transparency. However, it would not be wise for Musk to entirely disregard the interests of past shareholders. Although he would not be bound by SEC regulations, his predicted desire to exit would require him to exercise some care during his ownership. (Rock Center on Corporate Governance Silicon Valley Initiative).

Twitter files a lawsuit against Elon Musk – What are the stakes?

On July 5, 2022, Twitter filed a lawsuit against Elon Musk after he backed out of their agreement for the sale of the social media company for $44 billion (USAToday). In their complaint, Twitter alleges that Musk breached their contract many times before announcing his intention to back out of the deal, effectively, repudiating the contract. Complaint at 2.

Twitter is seeking specific performance from Elon Musk to uphold his end of the contract. If Twitter is successful, they will receive the benefit of their bargain and Musk will be bound to purchase Twitter for $44 billion; this represents nearly a 30% premium over the current value of Twitter (TWTR), based on its market capitalization of $29.67 billion (as of August 26 when the market closed).

Elon Musk wants to back out of the merger agreement. He claims that he has grounds to do so because Twitter materially breached the contract. If successful, Musk will not be bound by the contract and will not have to perform or be liable for any other form of damages.

If Twitter prevails, will it be entitled to specific performance?

Taking their complaint as true, Twitter is likely entitled to specific performance under Delaware law, the law governing the contract as stipulated by Section 9.8 of their merger agreement. (Merger Agreement at 69). Under Delaware law, a party seeking specific performance must establish that “(1) a valid, enforceable agreement exists between the parties; (2) the party seeking specific performance was ready, willing, and able to perform under the terms of the agreement; and (3) a balancing of the equities favors an order of specific performance.”*1

In this case, it seems Twitter will be able to establish that a contract exists and that they are ready and willing to perform, therefore the third requirement, that a balancing of the equities favors an order of specific performance will likely be determinative. Delaware precedent shows that this requirement aims to “restore the parties to the positions they would have occupied had the contract been lawfully performed to begin with.”*2

In order to put the parties in the positions they would have been in if the contract was performed, the court will likely have to enforce specific enforcement of the contract. Expectation damages in the form of the difference between the bargained for price and current market capitalization of Twitter would likely be insufficient to accomplish this because in a deal of this magnitude finding a substitute buyer for the company would be difficult if not impossible. Also, the contract states that “monetary damages... would not be an adequate remedy... in the event that the parties... do not perform the provisions of this [a]greement... the parties shall be entitled to an injunction, specific performance” (Merger agreement at 70).

Further supporting this conclusion, Delaware courts have “not hesitated to order specific performance in cases of this nature, particularly where sophisticated parties represented by sophisticated counsel stipulate that specific performance would be an appropriate remedy in the event of breach.”*3 The parties, Elon Musk and Twitter are certainly sophisticated parties represented by sophisticated counsel and they stipulated specific performance as an appropriate remedy for breach.

Therefore, if Twitter prevails, it will likely be entitled to specific performance, binding Elon Musk to purchase the social media company for $44 billion.

If Elon Musk Prevails will he be able to terminate the merger agreement?

Elon Musk claims that he has good cause to back out of the deal. He sent Twitter a notice aiming to terminate their merger agreement alleging three grounds for termination, claiming that Twitter: (1) breached information-sharing and cooperation covenants; (2) made materially inaccurate misrepresentations; (3) failed to comply with the ordinary course covenant by terminating certain employees, slowing hiring, and failing to retain key personnel (Complaint at 4).

If true, Musk’s claims represent valid grounds to terminate the contract. “Delaware law firmly supports the principle that a party to a contract is excused from performance if the other party is in material breach of his contractual obligations... A breach is material if it goes to the root or essence of the agreement between the parties, or touches the fundamental purpose of the contract and defeats the object of the parties in entering into the contract.” *4

Elon Musk has publicly questioned statistics provided by Twitter utilizing the platform to post a sarcastic poll.

The Restatement (Second) of Contracts provides that:

“[I]f a party's manifestation of assent was induced by a fraudulent misrepresentation by the other party upon which the recipient was justified in relying, the contract was voidable by the recipient.”*5

Also, the court in Akorn, Inc. v. Fresenius Kabi AG found that the buyer can validly terminate a merger agreement when the company breaches the ordinary course covenant (among other material breaches). *6

If taken as true, Musk will succeed and will not be bound by the merger agreement if he can show that either (1) Twitter made material misrepresentations upon which he justifiably relied, or (2) that Twitter breached the ordinary course covenant.

With billions of dollars on the line, only time will tell who prevails in this lengthy legal battle. If Elon Musk is forced to go through with the deal, he will add another billion-dollar company to his collection. If not, Twitter may have a rocky future ahead.

Footnote Citations:

  1. Level 4 Yoga, LLC v. CorePower Yoga, LLC, No. CV 2020-0249-JRS, 2022 WL 601862, at *30 (Del. Ch. Mar. 1, 2022).

  2. Vaughn v. Creekside Homes, Inc., 1994 WL 586833, at *1 (Del. Ch. Oct. 7, 1994).

  3. Level 4 Yoga, 2022 WL 601862, at *30.

  4. Id. at *27.

  5. Restatement (Second) of Contracts § 164 (1981).

  6. See Akorn, Inc. v. Fresenius Kabi AG, No. CV 2018-0300-JTL, 2018 WL 4719347, at *101 (Del. Ch. Oct. 1, 2018).


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