An Occasional Thought on Twitter v. Musk

Extra! Extra! Read all about it!! Sources report that Musk is reinstituting bid to buy Twitter at original price.

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As I expect everyone reading this blog already knows, Twitter and X Holdings (substantially controlled by Elon Musk) and, to a limited extent, Elon Musk personally, entered into a Merger Agreement in April of this year. On July 8, Musk gave notice of termination of the agreement. Four days later Twitter sued in the Delaware Court of Chancery for specific performance. Apart from Delaware, it is unlikely that a court would award the remedy of specific performance in this case. Damages, yes, if it turns out Musk was in breach, but under the common law in the U.S. specific performance is granted sparingly. The bias against specific performance goes back to Merrie Old England with its separation of the courts of law from the the courts of equity, and the historical/political priority accorded law courts. Even today, in the U.S. of A., only if "there is no adequate remedy at law" (money damages) are courts supposed to grant specific performance.

What increases the likelihood that a court would order Musk to close the deal is in large part the fact that the agreement says so. But is an agreement's say-so enough to bind a court in the exercise of its equitable discretion? Maybe. Especially in Delaware. At least if the agreement is between two sophisticated parties.

For some interesting observations by folks I respect, go to an interview with Nate Oman here about the constitutionality of specific performance, a three-parter by John Patrick Hunt here, here, and here, tilting in favor of the likelihood of specific performance, and a lengthy rejoinder by Robert Anderson here, closely analyzing the relevant language of the agreement and concluding that the court should not order specific performance.

What do I think, you ask? First, Twitter faces a serious hurdle on the issue of liability. And second, assuming the X Holding (err, Musk) has breached, I do not believe the Delaware Court of Chancery will order specific performance. Twitter will be left with liquidated damages of only $1 billion. While I am not fully convinced by the Anderson's analysis of the agreement, I believe it (and related factors) raises enough of a cloud of uncertainty to persuade the one person who really counts--Chancellor Kathaleen McCormick--that specific performance should not be granted.

Also, for what it's worth, as I write Twitter is trading at $42.84/share, roughly $12 less than the $54.20 price Musk agreed to pay but up from $36.81 when Musk gave notice he was pulling out. I will be interested to see if (and by how much) the stock price continues to rise as the trial date of October 17 approaches.