Elon Musk, in backing out of the deal to buy Twitter, has been left alone on a shrinking economic rock, facing a huge incoming tide of legal action.
He could end up losing many billions, taxing even the financial resources -- already weakened by a slide in the value of tech stocks -- of the world’s richest man.
The $US44 billion acquisition looks dead. In a filing to the Securities and Exchange Commission, Musk said he was exercising his right to "terminate the Merger Agreement and abandon the transaction".
He alleges material breaches of the agreement, including not providing enough data on false Twitter accounts.
Under the deal, a $1 billion break fee has to be paid by either side dropping the agreement.
And Twitter is fighting back, hiring a legal team, indicating it will seek to force Musk to pay up.
Bret Taylor, the chair of Twitter: "The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery."
The Wall Street Journal reports: “Corporate law experts say Twitter appears to be on sounder legal footing than Mr. Musk.”
Musk will have to show that what he agreed to buy is worth substantially less than what it was represented to be.
Saying that the number of spam accounts is bigger than estimated may not be enough. Legal experts say the impact has to be substantial.
Scott Galloway, a marketing professor who forecast the deal would collapse, says Musk is attempting to get out of an agreement that is legally binding.
At the very least, Musk will have to pay the break up fee of $1 billion, he says. But it is likely to be more.
Courts tend to uphold written agreements because that is the glue will holds commerce together.
And if Musk is forced to go through with the deal, he may have to sell assets, specifically Tesla stock. And that could see the value fall sharply.
“In a moment of a month of mania he committed to paying $54.20 a share for something that's now worth $20,” Galloway said in a podcast.
“And the piggy bank he was going to pay with is now 40% smaller, and he needs to get out of the deal.
“He has spent too much money on a credit card and the bill is coming due and he’s trying to figure out a way not to pay the credit card.
“This guy is playing chicken. He’s going to drag it out.”
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