“It’s a very, very weak legal case,” says John Coffee, of the Centre on Corporate Governance at Columbia Law School in New York. “He’s in the weakest possible position. He did no due diligence. He wanted to rush it [the deal], he wanted it expedited.
“Delaware [where Twitter is registered] will almost never let you escape a merger agreement, unless it’s something that would shock the entire world.”
Twitter could seek an injunction forcing Musk to go ahead with the deal. But even if it has the right to take Musk to court, it may not have the appetite. His fortune of more than $200bn makes him worth several times what Twitter is worth, giving him plenty of firepower for a protracted legal battle. Musk has plenty of courtroom history, launching legal challenges against the Securities and Exchange Commission over a 2018 settlement related to the botched Tesla deal, and successfully defending himself in a defamation case brought by a British caving expert whom he had called a “pedo guy”.
Coffee says Musk is likely to be gambling that Twitter would rather sell itself at a lower price than go through years of litigation against an unpredictable and high-profile target.
“Nobody is going to pay a higher price than $54.20. They may get damages. But they have a year of uncertainty,” he says.
It would not be the first time. One veteran banker compares the conflict to French luxury giant LVMH’s takeover of the US jeweller Tiffany last year. After agreeing a $16.2bn takeover in 2019, LVMH attempted to back out during the pandemic. Tiffany sued and ultimately the deal went ahead, but at a slightly reduced $15.8bn.
Musk may demand a bigger discount than that. Short seller Hindenburg Research said last week that a recent tech crash means Twitter shares would be worth around $31 if Musk had not launched his takeover bid. On Tuesday they were trading at $37, indicating that investors believe a deal will still happen.
“Fear is an interesting thing with shareholders – Musk is going to engineer his way into getting this,” says Jonathan Cohen, partner at law firm Ashurst. “You can’t halve the price clearly, but there will be some deal done. They’ll swallow it, take a price chip and cosy up to their new master.”