SpaceX founder Elon Musk reacts at a post-launch press conference after the SpaceX Falcon 9 rocket, carrying the Crew Dragon spacecraft, took off during an unmanned test flight to the Space Station International from the Kennedy Space Center in Cape Canaveral, Florida, USA, March 2, 2019.
Mike Blake | Reuters
After Elon Musk said he would end his acquisition of Twitter, the social media company sued the billionaire to enforce the transaction and quote a contract clause that prevents one party from withdrawing from the agreement.
The clause, called specific activitiesTo be commonly used in real estate cases to prevent buyers and sellers from rejecting transactions without good cause. But it’s also included in corporate merger agreements as a way to force a buyer or seller to close a deal, preventing serious breaches like fraud.
Announcement on Twitter on Friday Regarding his plan to terminate the agreement, Musk’s lawyers offered three arguments as to why Twitter was in breach of contract. First, they claim that Twitter has fraudulently reported the number of spam accounts, which the company has long estimated has about 5% of users. Musk would need to demonstrate a much higher number of so-called bots and show a “severe adverse impact” on Twitter’s business in order to have a basis for terminating the deal.
Second, Musk’s attorneys said that Twitter “did not provide much of the data and information” Musk requested, even though the contract states that Twitter must provide reasonable access to “properties, books and your profile”.
Ultimately, Musk’s lawyers argued that Twitter had failed to comply with a contractual clause that required the company to obtain his consent before deviating from normal business. Musk cites Twitter’s decision to fire two “senior” employees, fire a third of its talent acquisition team, and begin a general hiring freeze as examples of decisions made without reference. his opinion.
In a lawsuit filed in Court of Chancery Delaware on Tuesday, Twitter said Musk’s reason for wanting to close the deal was “the premise” and accused him of acting against the deal since “the market started.” turning”. The company requested a court hearing in September.
The Delaware Court of Chancery, a no-jury court that primarily hears corporate cases based on shareholder lawsuits and other internal matters, has ruled on a number of cases. a company invokes specific operating terms to force a sale. No deal is as big as Musk’s Twitter deal — $44 billion — and the details underlying them also vary.
Still, Past cases can provide context for How the dispute between Musk and Twitter could end.
IBP v. Tyson Foods
In this 2001 case, Tyson agreed to acquire IBP, a meat distributor, for $30 per share, or $3.2 billion, after winning the bidding war. But with Tyson’s and IBP’s businesses both suffering after the deal, Tyson tried to get out of the deal, arguing that there were potential financial problems at IBP.
Judge Leo Strine found no evidence that IBP had materially breached the contract and said Tyson simply had “buyer regret.” That cannot justify canceling a deal, he said.
The exterior of the Tyson Fresh Meats plant is seen on May 1, 2020 in Wallula, Washington. More than 150 workers at the plant have tested positive for COVID-19, according to local health officials.
David Ryder | beautiful pictures
Strine ruled that Tyson must buy the IBP based on the specific performance clause of the contract.
“Specific performance is the most appropriate measure of Tyson’s misconduct, as it is the only method to satisfactorily address the harm that threatens IBP and its shareholders,” Strine writes.
More than 20 years later, Tyson still owns IBP.
However, the Tyson deal differs on several key points. Tyson hopes a judge will let them walk out of the deal in part because IBP’s business declined significantly after the deal was signed. Musk is arguing misinformation and ambiguity about spam accounts should allow him to walk away.
Also, unlike Tyson’s deal for IBP, Musk’s acquisition of Twitter involved billions of dollars in outside funding. It’s not clear how a decision in favor of Twitter would affect potential funding for a deal or whether it could affect the closure.
Strine currently works at Wachtell, Lipton, Rosen & Katz, Twitter company hired to argue its case.
AB Stable v. Maps Hotels and resorts
In the case of this 2020, a South Korean financial services company, has agreed to buy 15 hotels in the US from AB Stable, a subsidiary of Anbang Insurance Group, a Chinese company, for $5.8 billion. The agreement was signed in September 2019 and is expected to close in April 2020.
Buyers argued that the Covid-19 outage was the cause of the severe adverse effect on the deal. The seller sued for specific performance.
Judge J. Travis Laster found that the hotel’s shutdown and significant reduction in occupancy violated the “law of common sense” of the terms of business and ruled that the buyer could get out of the agreement.
Delaware Supreme Court confirm the decision in 2021.
Tiffany v. LVMH
In another Covid-related case, LVMH initially agreed to buy jewelry maker Tiffany for $16.2 billion in November 2019. LVMH then attempted to cancel the deal in September 2020 during the pandemic, before it was set to close in November. Tiffany sued for the specific performance.
In this case, a judge never issued a ruling, because the two sides agreed to lower prices to account for the drop in demand during the global economic downturn caused by Covid. LVMH agreed paid $15.8 billion to Tiffany in October 2020. The deal ends in January 2021.
Front of a Tiffany & Co. in Mid-Town, New York.
John Lamparski / SOPA Photos | LightRocket | beautiful pictures
Genesco v. End line
Shoe retailer Original agreed ending line buying Genesco for $1.5 billion in June 2007 with an end date of December 31, 2007. Finish Line attempted to terminate the contract in September of that year, claiming Genesco “has committed securities fraud and deceived Finish Line into entering the deal by not providing informational documentation “relevant to the earnings forecast.
Like in the case of Tyson, the Delaware Chancery Court ruled Genesco had met its obligations and that Finish Line simply made the buyer regret overpaying. The market began to crash in mid-2007 with the onset of the financial and housing crisis.
But instead of completing the deal, both parties agreed to terminate the transaction, with Finish Line paying Genesco damages. In March 2008, with credit markets buoyant, Finish Line and prime lender UBS agreed to pay Genesco $175 million, and Genesco received a 12% stake in Finish Line.
Genesco remains an independently traded stock to date. JD Sports Fashion has agreed to buy End Line for $558 million in 2018.
WATCH: Elon Musk pulls out of Twitter deal, may go to court
