![Twitter has legal advantage in deal dispute with Elon Musk: report Twitter has legal advantage in deal dispute with Elon Musk: report](https://english.cdn.zeenews.com/sites/default/files/2022/07/10/1063528-untitled-design-39.jpg)
New Delhi: Twitter Inc has a strong legal battle against Elon Musk, which deviates from its $44 billion deal to acquire the US social media company, but could opt for a renegotiation or settlement instead of one, legal experts say decide long court proceedings. The Delaware courts, where the dispute between the two sides is to be heard, have set a high bar for acquirers who are allowed to go out of business. But target companies often opt for the certainty of a renegotiated deal at a lower price or monetary compensation rather than a messy court battle that can last for many months, three corporate law professors polled by Reuters said.
“The argument for settling for something lower is that litigation is expensive,” said Adam Badawi, a law professor at UC Berkeley. “And this thing is so messy it might not be worth it.” (ALSO READ: Property Sales Soar 2.5 Times Jan-June in Delhi-NCR; Prices Up 7%: Report)
Representatives for Twitter and Musk did not immediately respond to requests for comment. (ALSO READ: IT stocks likely to remain under pressure: Check what analysts are predicting)
Musk’s main claim to Twitter is that the San Francisco-based company breached his deal because it won’t share enough information with him to back up its claim that spam or fake accounts make up less than 5% of its active users. Twitter has stuck with that estimate, but also said the number of those accounts may be higher.
Musk also said in a letter to Twitter on Friday that the company’s misrepresentation of the number of spam accounts could be a “material adverse effect (MAE)” that would allow it to opt out under the terms of the deal contract to withdraw.
However, legal experts said that Delaware courts view MAEs as dramatic, unexpected events that harm a company’s performance over the long term. Deal contracts like the one between Musk and Twitter are so prescriptive that a judge has ruled that a MAE has only been validly triggered once in the history of such a lawsuit — in the case of German healthcare group Fresenius Kabi AG, which ended its deal for the United States Generic drug maker Akorn Inc in 2018.
In this case, a court ruled that Akorn’s assurances to Fresenius that it was complying with its regulatory obligations were unfounded. It also found that Akorn had withheld facts about his deteriorating performance, which surfaced in allegations by whistleblowers.
Legal experts dismissed the idea that inaccurate spam account numbers would result in a MAE for Twitter on the same level as the problems plaguing Akorn.
“If it goes to court, Musk will most likely have to prove that the spam account numbers were not only wrong, but so wrong that it will have a significant impact on Twitter’s future revenue,” said Ann Lipton, associate dean of faculty research at the Tulane Law School.
Musk also claimed that Twitter violated their agreement by firing two key high-level employees, the revenue product lead and the general manager of consumer, without his contractually required consent.
“That’s probably the only allegation that has merit,” said Brian Quinn, a professor at Boston College Law School, but added that he didn’t think the layoffs were serious enough to affect Twitter’s business.
In 2020, the Delaware court allowed South Korea’s Mirae Asset Capital Co to walk away from a $5.8 billion luxury hotel deal as the pandemic prompted the seller, Anbang Insurance Group of China, to go about business as usual change hotel operations.
INTRODUCTION INSTEAD OF LEGAL DISPUTE OVER
In most cases, the courts rule in favor of the target companies and order the acquirers to close their deals — an appeal known as “specific performance.”
For example, in 2001, Tyson Foods, the US’s largest chicken processor, decided it no longer wanted to buy the largest meat packer, IBP Inc. A judge ordered the transaction to close.
However, many companies choose to settle with their acquirers to end the uncertainty about their future that can weigh on their employees, customers and suppliers.
This happened more frequently when the COVID-19 pandemic erupted in 2020, causing a global economic shock. In one case, French retailer LVMH threatened to walk away from a deal with Tiffany & Co. The US jewelry retailer agreed to reduce the purchase price by $425 million to $15.8 billion.
Simon Property Group Inc, the largest operator of US shopping centers, managed to reduce the purchase price for a majority stake in competitor Taubman Centers Inc by 18% to $2.65 billion.
Other companies let the acquirers go in return for financial compensation. That includes medical technology company Channel Medsystems Inc, which is suing Boston Scientific Corp for trying to walk out of its $275 million deal. In 2019, a judge ruled the deal should go ahead, and Boston Scientific paid Channel Medsystems an undisclosed settlement.