Twitter vs. Musk: The Legality of the Twitter Deal in the Face of Musk’s Potential Abandonment

In April 2022, Elon Musk “struck a deal” to purchase Twitter. This initial agreement includes language to hold each individual party accountable if they back out of the deal. At that time, the filing states that if the deal fails to close by October 24, 2022 “both sides could walk away.”

Since this translation is not an example of one company buying a competitor, antitrust  law officials believe it is unlikely Mr. Musk’s purchase will be blocked or sued. Put simply, the government frequently intervenes when a company attempts to reduce competition by buying their competitor. Deals that “unfairly benefit the purchaser” in some other aspect of their business are also subject to challenge. The electric carmaker Tesla and rocket company SpaceX, Mr. Musk’s two largest assets, are not in competition with Twitter and there is no substantial evidence that Mr. Musk will try to “link them to his social network” in any way. 

That said, due to the substantial amount Mr. Musk will pay for this deal, roughly $44 billion dollars, the stakeholders are required to have the deal reviewed by the Federal Trade Commission or Justice Department.

Roughly three months following the initial deal, on July 12, 2022, Twitter sued Mr. Musk demanding he complete his $44 billion dollar purchase of the social media company. The Delaware Chancery Court would decide whether Mr. Musk remains accountable for the purchase, or whether Twitter “violated its obligation to provide Mr. Musk with data he requested,” authorizing him to leave the deal. 

The issue of disclosure is integral to the lawsuit between Twitter and Mr. Musk. Mr. Musk faults Twitter on two accounts. First, Musk took issue with Twitter's failure to provide information about the “spam bots” (fake accounts) on the platform. Second, Mr. Musk disagreed with the abrupt firing of two significant Twitter executives, a decision that came unbeknownst to him. 

However, there are concerns surrounding the legitimacy of Musk’s claims. Twitter officials believe that Mr. Musk was looking for an “escape” from the deal, in light of Tesla’s declining stock price over recent months. Brian J.M. Quinn, a Boston College Law School professor, also questioned the validity of Musk’s complaints, citing Mr. Musk’s previous tweets that indicate his awareness of spam on Twitter prior to the initial agreement. 

Regardless of his complaints or their validity, Mr. Musk signed a “legally binding agreement” with Twitter. Within this agreement, Twitter included a “specific performance clause,” granting it the ability to sue Elon Musk to “force the deal,” if he has the means to proceed with the acquisition. After Musk continued to refuse the deal, however, litigation was the only remaining course of action. 

Historically, Delaware’s Chancery Court, has precluded purchasers from abandoning deals. In 2001, the court required Tyson Foods to follow through with their agreement to purchase the meatpacker IBP. In instances where the court has allowed the buyer to pull out of the deal, it has required the buyer to pay associated “damages.” This precedent offered an alternative for Mr. Musk, who could have paid a $1 billion breakup fee to walk away from the deal.  However, this option  is only allowed under certain circumstances, such as if Mr. Musk no longer had the financial ability to uphold the  deal. If the courts declare that Mr. Musk’s attempts to exit the agreement violates the deal, then Twitter is authorized to ask the court for “specific performance.” If approved, this enables Twitter to carry out the aforementioned clause outlined in its initial contract with Mr. Musk, forcing him to complete the acquisition.

Regardless of the case’s outcome, Mr. Musk’s threat to abandon the deal could push Twitter back to the negotiation table instead of pursuing a long and drawn-out legal battle. These negotiations could produce a new deal that allows Mr. Musk to purchase Twitter at a lower price.

While a legal clash between Twitter and Mr. Musk seemed inevitable, recent events provided a surprising conclusion. During the composition of this piece, Mr. Musk agreed to revive his original deal to purchase Twitter. On October 4th, Elon Musk announced he would end the ongoing legal debates and follow through with the established agreement. Ann Lipton, a professor at Tulane Law School, believes Mr. Musk “recognized that litigation is not going well on his part,” and thus decided to acquiesce. 

To evade future complications, Twitter may request that the court supervises the deal’s closing. Experts believe that once the acquisition is completed, the lawsuit will be dropped against Mr. Musk. 

Haley Joyce is a Senior concentrating in International Public Affairs and Sociology at Brown University. She is a Staff Writer for the BULR Blog and hopes to pursue a law degree. Haley can be reached at Haley_Joyce@brown.edu.