First success for Twitter: The court in Delaware is no closer to Elon Musk’s desire to negotiate the purchase of Twitter in 2023. Because time is pressing.
Elon Musk and Twitter will see each other in court in October, the Delaware Court of Chancery. A decision will then be made as to whether Musk must honor his contract to buy Twitter for $46.5 billion. This decision by the responsible judge, Chancellor Kathaleen St. Jude McCormick, on Tuesday is a first partial success for Twitter and a setback for Musk. “(They) underestimate the ability of this court to (…) handle complex cases quickly,” McCormick told Musk’s attorneys.
Musk had resisted an expedited trial and tried to push the trial into the second half of February 2023 – well after the contractually agreed purchase date, October 24 at the latest. Twitter described this as a deliberate stalling tactic, and such a late decision hurts the company.
It pushed for a four-day trial in September, citing, among other things, that Musk had publicly aired plans to set up a Twitter competitor. The internal data Twitter received as part of the purchase agreement could help a competitor. It is therefore particularly important to oblige Musk to quickly comply with his purchase agreement.
Musk’s proposed schedule is meant to delay things until the end of April. Musk’s financiers only have his word until April 25, 2023. After that, he could actually get rid of the purchase contract with reference to a lack of money. So time is ticking for Musk and against Twitter.
From the sudden billion dollar purchase to Kadi
At the end of April, Musk surprisingly committed to buying Twitter without conducting the company’s usual due diligence. The purchase price of $54.20 per Twitter share represents a total cost of approximately $46.5 billion. But after hastily signing the contract, the multi-billionaire lost interest in the purchase. First, Musk tried to push down the purchase price for Twitter. He primarily accused Twitter of spreading incorrect statistics about fake profiles and spam.
On July 8, Musk finally tried to back out of the Twitter purchase agreement. But Twitter says that’s a breach of contract because it has fulfilled all of Musk’s demands as per the contract. On July 12, Twitter sued Musk in Delaware, demanding the entire purchase price. The parties have expressly agreed in the purchase contract that the actual takeover can be enforced instead of just obtaining compensation.
Judge: Time is pressing
The arguments put forward by Musk, in particular for calculating the proportion of spammers under the mDAU statistic (daily users who can be addressed with advertising, excluding accounts already recognized as spammers and bots, note), are advanced from Twitter’s point of view: even if Twitter’s statistic as per the defendant claimed would be wrong, do not shake the purchase contract. The company did not guarantee a specific proportion of spam; Musk could have done a due diligence before signing the contract, but he deliberately chose not to do so.
The lawyers say that every additional hour of uncertainty about Twitter’s future will hurt the company. The judge also sees it this way: “These concerns are clearly visible in the present case,” she said during the hearing. “The longer a takeover remains in limbo, the greater the cloud of uncertainty that typically hovers over the company, and all the more so greater is the risk of irreparable harm to sellers.” The exact date for the courtroom phase in October still depends on preliminary procedural steps and will be determined in the next few days by the judge’s office and the lawyers of both parties to the dispute.
The procedure is called Twitter v. Elon Musk and is pending in the Delaware Court of Chancery at Case No. 22-0613. Tuesday’s hearing was held online as Judge McCormick fell ill with Covid19. She is the first female Chancellor of the Delaware Court of Chancery. The court has several special features that make it particularly popular for corporations: It usually decides without a jury, which speeds up the process enormously. In addition, it expressly orients itself more closely to considerations of justice and less to statute law than most other US courts.
Complaint Twitter v. Musk
Elon Musk’s remains of a replica with a request for trial in 2023
Twitter’s Written Arguments for Expedited Trial