Twitter stock trading ground to a halt after shares soared on reports that Elon Musk would proceed with his $44 billion deal to buy the company after months of legal battles.
For the second time, Musk offered to buy the San Francisco company for $54.20. Twitter shares rose nearly 13% to $47.93 before trading was halted on the New York Stock Exchange, which listed “pending news” as the reason for the halt. Trade stops are stock exchanges’ way of giving investors a forced timeout when trading in a stock becomes too chaotic, or when a company is about to deliver market-moving news.
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.
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, and legal experts say Musk faced a major challenge defending himself against a Twitter lawsuit, which was filed in July.
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.
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 believe he faced an uphill battle convincing Chancellor Kathaleen St. Jude McCormick, the court’s chief judge, that something has changed since the April merger deal that warrants rescinding the deal.
By honoring the deal, Musk essentially gave Twitter what it was seeking in court: “specific performance” of the contract with Musk, meaning he would have to go ahead with the purchase at the original price. The contract Musk signed also has a break fee of $1 billion.
Eric Talley, a law professor at Columbia University, said he’s not surprised by Musk’s change of course, especially ahead of a scheduled statement from Musk by Twitter lawyers starting Thursday that “it wasn’t going to be nice”.
“On the legal merits, his case didn’t seem that strong,” Talley said. “It seemed like a pretty simple case of buyer’s remorse.”
If Musk lost the case, the judge could not only force him to close the deal, but also impose interest payments that would have increased its cost, Talley said.
What surprised Talley is that Musk does not appear to be trying to renegotiate the deal. Even a modest price cut could have given Musk a “moral victory” and the ability to say he got something out of the protracted dispute, Talley said.
Wedbush analyst Dan Ives wrote in a note to investors that Musk’s latest offer is a clear sign that he recognized his chances of winning were slim.
“Being forced to do 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 save 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.