Trading in Twitter shares halted after the stock jumped on reports that Elon Musk would move on the $44 billion deal to buy the company after months of legal battles.
For the second time, Musk offered to buy the San Francisco company at $54.20. Shares jumped nearly 13% to $47.95 before trading was halted.
Bloomberg News reported Tuesday that Musk made the offer in a letter on Twitter, according to people familiar with the matter who were not identified. The Wall Street Journal also reported that Tesla’s CEO has decided to go ahead with the acquisition.
Musk has been trying to exit the deal for several months after signing on to buy the social media platform in April. Shareholders have already approved the sale. Musk claimed Twitter overestimated the number of fake accounts on its platform, and Twitter sued when Musk announced the deal was off.
Neither Twitter nor Musk’s lawyers responded to messages seeking comment on Tuesday.
The lawsuit seeking to force Musk to buy Twitter is set to begin in Delaware District Court on October 17.
Difficult legal battle
Musk’s argument for pulling out of the deal — largely based on the claim that Twitter misinterpreted how it measures the size of “spam bot” accounts that are useless to advertisers. But most legal experts believed he faced an uphill battle to convince Chancellor Kathaleen St. Jude McCormick, the court’s chief judge, that something has changed since the April merger agreement that warrants terminating the deal.
Legal experts have generally said that Twitter had the upper hand in the lawsuit, which Twitter filed in July. Twitter is seeking “specific performance” on the contract with Musk, meaning it would have to go ahead with the purchase at the original price. The contract Musk signed also has a $1 billion fee.
“This is a clear sign that Musk recognized heading into the Delaware Court that the odds of us winning against the Twitter board were very unlikely,” Wedbush analyst Dan Ives wrote in a note to investors. “Being forced to do the deal after a long and ugly court battle in Delaware was not the ideal scenario, and instead of accepting that path and moving forward with the deal will save a huge legal headache.”
Among the remedies that would favor Twitter is a court order to process the deal. The Chancery Court last year forced private equity firm Kohlberg & Co. to proceed with the $550 million acquisition of DecoPac, a Minnesota-based company that bills itself as the world’s largest supplier of cake decorating supplies to professional decorators and bakeries. The case was emblematic of the court’s common — though not uniform — decision to enforce buyers’ contractual obligations.
Other options include forcing Musk to pay the breakup fee agreed to by each side if he is found responsible for the deal collapsing. Or it might have to pay a larger amount without actually buying the company for $44 billion.
Legal experts said Delaware courts have been selective in their interpretation of what is considered a valid reason to back out of an agreement. The gap between what Musk knew about Twitter when he made the bid in April and the state of the company today had to be vast, and there is little evidence of it, a lawyer said.