Why Musk gave up: He’s almost certain to lose the Twitter case, says law professor

Why Musk gave up: He's almost certain to lose the Twitter case, says law professor
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Illustration of Elon Musk surrounded by birds in the shape of the Twitter logo.

Aurich Lawson | Patrick Pleul/dpa-Zentralbild/ZB

Why did Elon Musk agree to buy Twitter instead of continuing its claims that Twitter violated the merger agreement by lying about bots? There are a few answers, but “the biggest of all is that he’s almost certainly going to lose [in Delaware Court of Chancery]. And of course if he loses, he has to do exactly what he just agreed, which is to close the deal at the original price,” law professor Robert Miller told Ars in a phone interview yesterday.

Miller is the F. Arnold Daum Chair in Corporate Finance and Law at the University of Iowa College of Law. “The Delaware Supreme Court and Delaware Court of Chancery have cited more than forty times Professor Miller’s articles on material adverse effects, an issue the Court of Chancery has called ‘one of the most difficult issues under Delaware law.’ has,” he said University of Iowa was says. Musk’s defense of Twitter’s lawsuit hinged heavily on whether he could show that Twitter had suffered material harm.

Musk tried to get out of the $44 billion deal by claiming that Twitter lied in its estimate that less than 5 percent of its monetizable daily active users (mDAU) are spam or fake. But his claims didn’t seem to have any solid evidence, and with the scheduled trial coming up in less than two weeks, Miller says Musk has likely finally realized his case is unlikely to be a winner.

“At this point, I think his attorneys have all the documents that they’re going to get from Twitter, and it’s probably pretty clear that there’s nothing to that allegation,” Miller said. He also predicted that Musk would lose over a week ago when it looked like the October 17 trial would start as planned.

In a letter to Twitter Monday, days before he was scheduled to testify, Musk said offered to close the deal “provided that the Delaware Chancery Court immediately stays the action … and adjourns the trial and all other related proceedings pending such conclusion or further court order.” A suspension would not prevent Twitter from pursuing its lawsuit against Musk if he backs out of the deal again.

Musk’s cheating argument was implausible

If Musk actually did what he claimed, he would be “home free” and wouldn’t even have to pay the $1 billion fee to break up the merger, Miller said. But Miller called Musk’s central claim implausible.

“If Twitter had been involved in a giant mDAU scam — in other words, if they really knew there was a better way to measure fake accounts than the process they were using, but they’d gone with this anyway, because he delivered the numbers they produced liked, but the real process, which they themselves knew was better, came back with a number of 15 percent – if he could prove that, he’d be in great shape,” Miller said.

But this scenario would be “comparable to an Enron-level scam,” a “massive securities scam” in which “everyone involved in the scam sold Twitter stock they received as compensation during the scam period to criminal insiders.” trade is to blame,” Miller said. That “makes it inherently implausible. Things like that happen occasionally, but they’re extremely rare,” he said.

Miller has presented the Musk/Twitter case before the New York City Bar’s Committee on Mergers and Acquisitions several times, including yesterday morning. He was also a former attorney at Wachtell, Lipton, Rosen & Katz, which represents Twitter against Musk and before represented Musk and Tesla on board other matters.

experts who spoke to the Financial Times agreed that Musk’s side must have realized during the discovery that the case was too weak to go to court. “I think we were very close to the end of the discovery and Musk’s lawyers didn’t get what they wanted,” Stefano Bonini, a corporate governance expert at Stevens Institute of Technology, told FT. “The judge didn’t make that many concessions to Elon’s team. They submitted requests for an unreasonable amount of data, and the judge ruled that much of what they requested was unnecessary and genuinely confidential.”

And a tweet Musk wrote yesterday: “The purchase of Twitter accelerates the development of X, the everything app.”

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