The world's richest man was sued by a social networking platform on Tuesday to force him to follow through on his purchase of the company.
"Twitter sued Elon Musk on Tuesday to force the billionaire to complete his $44 billion acquisition of the company, setting the stage for a prolonged legal battle over the fate of the social media service," The New York Times reported Tuesday. "Mr. Musk agreed in April to buy Twitter but declared last week that he intended to walk away from the deal. To push Mr. Musk to abide by the acquisition agreement, Twitter sued him in Chancery Court in Delaware. The court will determine whether he remains on the hook for the purchase or whether Twitter violated its obligation to provide Mr. Musk with data he requested, entitling him to walk away.
The contract Musk signed included a specific performance clause.
The newspaper explained three potential outcomes.
"Still, Mr. Musk’s threat of walking away could bring Twitter back to the negotiating table, allowing the billionaire to buy the company at a discount," The Times explained. "The two sides could also settle. Or they could pay a $1 billion breakup fee and walk away, an option allowed only under certain circumstances, such as if Mr. Musk’s financing fell through."
Twitter has motivation to fight to force the deal in court.
"If Mr. Musk successfully disentangles himself from Twitter, it could be disastrous for the company. Its stock has fallen more than 35 percent below his offer of $54.20 per share. Twitter’s business has also deteriorated in recent months," the newspaper explained. "In the past, Delaware’s Chancery Court has prevented companies from trying to walk away from deals. In 2001, for example, when Tyson Foods tried to back out of an acquisition of the meatpacker IBP, the court ruled that Tyson had to follow through with the agreement. In situations where the court has allowed buyers to exit, it has required them to pay damages."