Inside Elon Musk’s new legal strategy for ditching his Twitter deal

Elon Musk has buyers remorse. On April 25 the billionaire Tesla and the CEO of SpaceX agreed to buy Twitter for $44 billion but since then the stock market has plummeted. Twitter agreed to sell to Musk at $54.20 per share a 38% increase in the time Today it is trading around $40. This is probably the real reason why Musk spends so much time talking about robots. On May 13 he claimed that the Twitter deal was on hold due to a discrepancy over how much of the platforms user base is made up of bots an umbrella term for automated accounts. On June 6 Musks lawyers sent a letter to Twitter and the US Securities and Exchange Commission asserting his right to terminate the contract if the company did not share information that would allow Musk to conduct his own analysis of the case of the botnet an analysis that Musk said is necessary to secure loans for the deal.

It's a disingenuous claim Musk will need to show that his loan agreements are really conditional on getting this information about the bots. To understand the legal nuances Quartz spoke to Ann Lipton associate dean of faculty research at Tulane Law School who is an expert in corporate and securities law and has followed the Musk Twitter saga closely. This interview has been edited for clarity and length.

Quartz Musk tried to acquire Twitter at $54.20 a share and then the market fell sharply. Now talking about bots. Is this just a way to renegotiate the deal at a lower price?

Lipton, I think he was looking for a way out but maybe to negotiate a lower price. I suppose the reason for this is the turmoil in the market. But maybe not because it originally seemed as if his interest in the company wasn't financial. If Musk wants [Twitter] because he loves the company but not because he plans to make it more profitable he will have trouble getting other investors to take the recession. Well, it sounds like a buyer's remorse.

If the reason Twitter accepted the deal was to maximize shareholder value would renegotiating or allowing Musk to go back abroad be unattractive?

it will be from. Let's imagine a world where he has a really good legal case it might be good for shareholders or at least if it's not resolved without years of costly litigation one can imagine a world where Twitter settles with him. But their interest is to get the highest price for their shareholders. As long as they believe his allegations are legally weak and can be quickly resolved in court they have no reason to settle it.

Can Musk Pay His $1 Billion Termination Fee and Walk?

N,o because Twitter has the right to sue over a certain performance which means that the contract says they have the right to force him to actually shut down as long as he has his debt financing in place. If the reason he's not lining up for debt financing is because he is undermining his capacity then that won't count [as an outlet]. As long as the debt financing is there he's going to have to shut down well Twitter has the right to sue him to force him to shut down.

In terms of the number of bots Musk appears to be saying he wants the right to do due diligence...after he agreed to the deal and didnt do the due diligence.

Yes somehow. Musk waived his right to see his books and records all before signing the deal. However the agreement itself states that Twitter will provide the information necessary for the shutdown. So youre trying to argue that the information that allows you to validate the bots is necessary for shutdown. And at least one of the reasons why you say shutdown is necessary is that you cant finance your debt without it.

Now thats a much stronger legal argument than the original one which [to Twitter] had misrepresented the amount of spam. This is a stronger argument because due to the way the contract was written Mask has the right to withdraw if Twitter does not provide the information necessary for the shutdown and can withdraw if it cannot obtain debt financing They cannot sue. for a specific performance. So if its true that Twitter doesnt provide the information needed to get debt financing that gives Musk reasons to close the deal and Twitter cant sue over a particular performance. I have serious doubts that this is true. But if true this is a stronger contractual argument as a basis for leaving.

When we talk about debt financing what do you mean?

Originally the plan was for Musk to put up some of his own money raise some debt using his Tesla stock as collateral and then collect another debt that would be paid off with Twitters cash flow. So three sources of money. The portion that relied on Tesla shares as collateral for the loan has been removed. But still in theory the purchase price is partially financed by debt which means that banks are lending and are supposed to be repaid via Twitter.

Now she basically says The banks have promised me that they will loan me this money so I can buy the company to be repaid with future cash flows on Twitter. But they refuse to withdraw this money unless you prove something about the spam. I promised in the merger agreement  Twitter that you will provide the information necessary to obtain this loan and by not giving me the information necessary to obtain this loan I cannot obtain the loan which means that I cannot obtain the financing which means I cannot close this deal.

Is there a world in which Musk can walk out of the bargain with this argument?

definitely. Its a correct reading of the contract but that doesn't make it feasible in practice and I have doubts as to whether Twitter is in fact holding back the necessary information. I suspect that this is the obstruction and I suspect that this is necessary. And again whether Twitter wants to litigate about it is a separate question. It will most likely depend on the strength of your case. And I have no idea because I didnt see anything inside but it seems implausible that this is in fact whats going on.

Do you still assume Elon ends up owning Twitter?

Oh no. Id never guess it would end with Twitter. I have no idea. I dont know at what point Twitter decides the headache isnt worth it.