The legal battle between Twitter and Elon Musk over its failure to complete an agreed-upon purchase of the company has been put on hold after a judge granted the Tesla chief executive’s request for a delay.
The social media platform and Musk, who this week addressed his decision to pull out of the deal, have until Oct. 28 to close a deal or the case will reopen in Delaware in November.
Here we shed some light on how the controversy got to this point and what could happen next.
What is the background of the series?
A quick recap for those who haven’t followed this whirlwind saga closely: Musk signed a formal deal to buy Twitter for $44bn (£39bn) in April. In July, he announced he was terminating the deal and leaving. Twitter responded by filing a lawsuit in Delaware, where the company is based, demanding that the world’s richest man close the deal according to the agreed terms.
Musk countered, accusing Twitter of running a “scheme” to mislead investors about the number of troublesome spam accounts on its platform. The trial to decide all this was to be held on October 17th.
Why was this trial postponed?
On Monday, Musk said he would like to buy Twitter for the previously agreed upon $54.20 per share, perhaps mindful of the widespread legal view that he will not win the lawsuit.
However, talks since then to close the deal have foundered, reflecting how much bad blood there is between the two sides. On Thursday, Musk asked Presiding Judge Kathaleen McCormick to stay the trial while he gets financing to close the deal. Judge McCormick got his wish.
Why did Musk ask for a delay?
Musk’s representatives argued in a filing Thursday that Twitter would not “take yes for an answer” and would not agree to put the lawsuit on hold. His lawyers said progress was underway to finalize a $12.5 billion debt financing package that is integral to sealing the purchase, but would not be ready before Oct. 17. The judge gave both sides until 5pm on October 28 to strike the deal or the trial will resume sometime next month.
Why did Twitter want the trial to continue?
Looks like Twitter doesn’t trust Musk at all. In its filing Thursday arguing for the delay, the company said the Tesla chief had spent months trying to delay a test to derail the deal, but now suddenly wants a delay to get it done. The filing says, scathingly, that Musk promises “”Trust us, … we mean it this time””.
The social media platform says the delay request contains provisions that are an “invitation for further disorder and delay,” including the right to pursue all “claims and defenses in the event of no closure.” This appears to be in reference to Musk’s lawsuit against Twitter that claims it has intentionally miscounted spam accounts on its platform.
The company adds that Musk breached the agreement by failing, according to the merger document, to do “all things necessary, proper or proper” to arrange the debt financing. The filing claims to have spoken with a representative of one of Musk’s lending banks, who said that as of Thursday morning they had not received notice that he intended to close the deal.
What happens next?
Musk must try to close the deal by Oct. 28, with Twitter distrusting him, the debt market struggling and the threat of a trial that could force him to complete the deal independently. Twitter believes Musk’s latest proposal to close the deal represents a change in terms, making its closing contingent on debt financing, which Twitter argues is not required by the merger agreement signed in April.
Although the banks have signed commitments to provide the financing and Musk’s lawyers said in a filing Thursday that the lenders are prepared to meet their commitments, there is a scenario in which the debt financing falls through and Musk then is attempting to exit by paying a $1 billion termination fee (as per the merger agreement). But a lot needs to be done for that to happen. So there is more of a legal argument for both sides even without a trial.