The chances of a settlement between Twitter and Elon Musk are rising, legal experts and other observers say. One M&A expert sees Musk buying Twitter for $50 a share.
- Twitter and Musk are approaching the start of a five-day trial in October.
- Disputes like this regularly settle before trial, often just days before, legal experts said.
- Twitter may be open to a deal where Musk still acquires the company but gets a discount.
Twitter is likely weighing a settlement with Elon Musk as they barrel toward a trial in Delaware court later this month over their tortured $44 billion acquisition deal, according to legal experts and other observers.
“If Musk went to them tomorrow and said ‘Knock 2% off the purchase price and I’ll still buy the company,’ I think they jump on that,” said Robert Miller, a law professor with extensive experience in mergers and acquisitions and related laws in the Delaware Court of Chancery.
That’s the court where Twitter sued Musk in July to force his acquisition of the company. Musk has been trying to back out of the original deal, and the two sides are due to start a five-day trial in mid-October.
A hypothetical 2% discount would mean Musk pays about $1 less per share than he initially agreed, saving about $880 million on the deal. Miller does not think that would be enough of a discount to please Musk.
Instead, Miller expects Twitter and Musk to agree on $50 per share, should they ultimately come to a settlement on the acquisition. That would mean Musk pays about $40 billion for the company, rather than $44 billion.
Miller could see Twitter agreeing to a steeper 10% discount, as even that would represent a good deal for shareholders. “Twitter has a 90% chance of winning, but with so much at stake, that’s still an incredible deal for them,” he said.
LVMH versus Tiffany
The legal expert pointed to a somewhat similar dispute settled last year between luxury good conglomerate LVMH and the jewelry brand Tiffany.
In that case, LVMH agreed to acquire Tiffany for $16.2 billion, then tried to back out after the pandemic hit, citing a “material adverse effect” on Tiffany’s business. They settled at the start of 2021 with LVMH paying $15.8 billion, a 2.5% discount worth $400 million.
“LVMH had no chance of winning that suit and Tiffany still agreed to settle,” Miller said.
MAE, as it’s often called, is the same argument Musk is attempting to make against Twitter, saying he can walk away from the deal because Twitter has misrepresented the number of “bots” or inauthentic accounts on its platform.
The case so far has appeared to break in favor of Twitter more often than it has in favor of Musk. Still, Twitter may want to avoid the even small possibility that it will not see an ideal outcome at the end of a trial.
“Litigation is inherently risky,” Miller said. “Even if there is no MAE today, there could be MAE tomorrow. If Twitter sees a 1 in 10 chance of losing, it’s worth it to settle.”
Since Twitter sued Musk to force his acquisition, it has said publicly it intends to take the billionaire to trial and is confident in its case against him. Representatives for Twitter and Musk did not respond to requests for comment.
‘Both sides will be pushed by their attorneys to settle’
Other experts and analysts, too, said they see a real possibility of Twitter and Musk settling before going to trial.
Chester Spatt, a professor of finance at Carnegie Mellon University and previously a chief economist for the SEC, said it’s plausible that Twitter might settle, but it would need to be for a significant amount of money.
“Twitter would not want to settle for an amount at which its stock price would fall in response, as that would significantly enhance Twitter’s vulnerability to a shareholder suit,” Spatt said.
Twitter’s board has a duty to shareholders to increase the value of the company as much as possible. If the deal doesn’t go through, even if Musk pays a break fees of several billion dollars, Twitter’s stock may fall and its directors could be sued by investors.
Right now, the $54.20 per share price that Musk has agreed to pay represents a good deal for shareholders. Even though the company’s stock has ticked up since July, it’s currently trading around $43, or 20% less than Musk’s offer.
“Both sides will be pushed by their attorneys to settle,” Erik Gordon, a business law professor at University of Michigan, said, adding that Twitter’s board “is in a tough spot.”
“Twitter should settle and end the uncertainty, but it can’t settle for a billion or two because its case is so strong,” he said. “It faces lawsuits if it doesn’t settle and loses, and faces suits if it settles for too little.”
Musk is in a bind as well, according to Dan Ives, an analyst at Wedbush Securities. He said the billionaire “has a lot to lose once Oct. 17 comes,” the day the trial in Delaware is set to begin. Wedbush now sees chances of a settlement higher than 50%, he added.
Miller said settlements are common in legal fights like this, and usually occur right before trial, when all the evidence is in and can be assessed by both sides.
“You won’t see a settlement here earlier than October 13 or 14,” Miller surmised.
Something else that can spark a settlement, he said, is a major leader of a business in a lawsuit not wanting to be deposed. This past week, Musk rescheduled his deposition, while Twitter CEO Parag Agrawal canceled his at the last minute and has yet to reschedule.
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