Elon Musk frowning
Source: Getty Images

Elon Musk Could Be Forced To Buy Twitter

Mohit Oberoi, CFA - Author
By

Jul. 13 2022, Published 2:42 a.m. ET

Elon Musk has been dominating headlines since offering to buy Twitter after quietly acquiring a stake in the company. After putting the deal on hold in May, Musk has backed out, inviting a lawsuit from Twitter. Could Elon Musk be forced to buy Twitter?

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Musk offered to buy Twitter at a significant premium, for $54.20 per share. That amount was conspicuously similar to his 2018 tweet to take Tesla private at $420 per share. (As things turned out, Musk hadn’t secured the funding to take Tesla private, and he and Tesla eventually had to pay a fine to SEC. Musk also lost his position as the company’s chairman.)

Why has Musk called off the Twitter acquisition?

Musk has cited three main reasons for calling off the Twitter deal:

  1. He claims that bot accounts on the platform seem to comprise much more than the 5 percent that Twitter claims.
  2. Twitter didn't share the information he needed to figure out how many bot accounts are on the platform, according to Musk.
  3. Musk has objected to Twitter firing some key executives.
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musk does not wants to buy twitter
Source: Getty Images

Many believe that Musk has “buyer’s remorse.”

Musk offered to buy Twitter at a significant premium as he rediscovered himself as a “free speech absolutist.” Some see his alleged concerns over fake accounts as a ploy to renegotiate the price. Meanwhile, Twitter is suing Musk for “specific performance” and wants him to uphold his $44 billion offer. (This marks a complete reversal from earlier this year, when Twitter’s board blocked Musk’s offer to buy the company.)

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Some possible outcomes of the Twitter lawsuit:

Twitter has filed a lawsuit against Musk in the Delaware Court of Chancery. Although Musk seems to want to walk out of the deal, legal experts don’t see that as a probable option. Another outcome would be that Twitter shares the information about bot accounts that Musk is seeking.

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The contract between Musk and Twitter has a section that states if any party walks out of the deal must pay a $1 billion breakup fee. Some lawyers think the two parties could even renegotiate a higher breakup free outside of court, as was the case in the LVHM deal to acquire Tiffany.

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Could Musk be forced to buy Twitter?

Precedent has been set: in 2001, Tyson Foods was forced to buy IBP by the court. Tyson argued that there were undisclosed financial troubles at IBP but the judge didn't buy its argument. According to Matt Levine, a legal columnist at Bloomberg, "I like Twitter’s odds—its odds of getting specific performance and making Musk close the deal—in court, but I don’t think anything is a certainty at this point."

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