Since this was the first hearing, the judge wasn’t about to force Musk to bring his checkbook. Tuesday’s hearing was all about when the real action will begin. Twitter wanted it to be soon. Musk wanted it to be a lot less soon.
While it may be typical for a criminal trial to take months or years to get rolling—and anyone who has had to try and extract a judgment in civil court knows that the odds of one or both parties dying before getting a date is a real factor—this is a bespoke court, one that exists only for the purpose of handling corporate cases. Top-notch service is all part of keeping Delaware at the center of “we don’t care where you do business, you can still be a Delaware corporation.”
At the end of the day, the judge set the court date for October. That’s about two weeks from the date requested by Twitter. It’s many months from the date requested by Musk.
That decision was an easy one, because Twitter quickly laid out the case that Elon Musk took these steps:
1. He offered to buy Twitter, without conducting discovery and waiving due diligence before writing down a number well above the market price (a number that contained, in typical Musk fashion, a marijuana joke).
2. Musk then proceeded to ask for internal company data. Then more data. Then more. Always while claiming he didn’t have enough.
3. During the period that he was supposed to be completing his acquisition of the company, Musk instead publicly derided Twitter, accused the company of being deceptive about facts related to its value.
4. Musk then declared that he was dropping the deal in a way that caused even more damage to Twitter.
The reason that all this is intolerable to the Delaware court is simple enough to understand by substituting [Generic Rich Guy] and [Target Acquisition] into the above scenario. If what Musk did was okay, then anyone who has enough money to mount a supposed acquisition could make an offer to buy, gain access to company data, then use this data to bring the company down. Imagine this scenario in terms of a tech CEO buying out a rival, or someone like Rupert Murdoch going after a rival network. In either case, the [Generic Rich Guy] knocks the stuffing out of [Target Acquisition] with next to no investment.
And now that the target company is worth a fraction of that original offer, the would-be buyer could either walk away and leave behind the wreckage, or pick up the remains for a song. It’s a form of corporate sabotage that not only invites those with deep pockets to rampage over any potential corporation, it’s economically terrifying in the sense that it makes corporations impossible to value. In almost any market, whether it’s the local yard sale or Wall Street, the value of something is what someone will pay for it. But if you can say you’ll buy something, purposefully damage it, then demand a discount … what’s the real value?
That form of corporate sabotage is something the Delaware court is really, really not going to tolerate. Because it can’t. Unsurprisingly, this kind of disparagement of a takeover target in order to either screw the deal or demand a discount isn’t an invention of Musk. The courts have seen this before. A lot. The only difference here is the scale of the deal and the public nature of the spat.
Right now, Elon Musk’s admirers on Twitter think it’s a great idea that Musk bust the company in the chops, then buy it at a discount. It’s a sign of his genius. So long as you overlook the fact that it’s also illegal.
When this thing goes to trial in October, it will move quickly. Think no more than a week to hear the case. Not much longer to receive a judgment. Here are the possibilities, starting with the least likely.
Right now, that idea that Musk could walk away from this whole idiocy unharmed seems to be off the table.
Musk walks away scot-free. This is not going to happen. The claims that Musk is making about bots are all but immaterial to the deal, and the fact that Musk’s attorneys won’t even say that they have evidence Twitter is lying, but only that Musk believes the number of bots to be higher, shows they understand this is a no-go.
Musk pays $1 billion to get out of the deal. There is a $1 billion termination fee worked into the deal, but Twitter doesn’t seem to have triggered any of the reasons that might be acceptable. Musk’s team will probably argue for “he pays nothing.” They would be ecstatic to land he pays $1 billion. It’s highly unlikely.
Musk buys Twitter for $44 billion. Twitter is demanding “specific performance.” That is, for Musk to come through the with $44 billion he offered at the outset. After just a brief session in court, this seems more likely than it did at the outset. But if it happens, everyone will hate the result. Traditionally, the Delaware court has not liked forcing people to buy companies they don’t want. So … a little less than even odds.
Musk buys Twitter at a reduced cost. Wait a second. Isn’t this what Musk’s fans claims Musk wanted? It is. It’s also one of the possible outcomes still definitely on the table. The Delaware courts have allowed things like this to happen in the past, especially when arranging the union of hostile forces. However, if the court feels that the cost of Twitter is lower specifically because of Musk’s disparagement, that makes specific performance more likely.
Musk pays Twitter a greater than $1 billion “go-away fee” to … go away. If Musk is reading the tea leaves on the mood of the court, based on today’s ruling, this is even more likely. And it was already at the top of the charts. It’s easy to see Twitter demanding a number like $12 billion—the difference between Musk’s offer and the current value of the company, and settling for something around half of that. On the other hand, Musk may be so deeply covered in his infallible rich-guy armor that he rides this thing all the way down. In which case, “specific performance” is the most likely result. Twitter’s shareholders may also demand Twitter stick to its specific performance guns if it seems that Musk is losing badly enough.
There have also been some concerns about whether Musk will pay up, no matter what the court does. After all, a chancery court is not a criminal trial. They’re not going to drag Elon off to prison. It’s a real concern, especially given Musk’s willingness to take large scale action simply to slight officials. However, he does have significant assets in the U.S. Those assets will go under the hammer eventually if Musk refuses to go along with the court, though it will take a number of steps, multiple courts, and likely many years, to get there.
All of which is assuming that the world’s biggest troll doesn’t just find a way to blow up the system. Which isn’t a completely safe bet.