Could Twitter force Musk to close the deal? Here’s what we know

Head to court

Elon Musk late last week finally followed through on his threat to pull out of his $44 billion deal to buy Twitter. The social media company quickly responded saying it was considering filing a complaint. Most legal experts believe the law is heavily on Twitter’s side, assuming nothing explosive comes to light during the trial. (Musk, in a tweet early this morning, seems to relish the prospect to force Twitter executives to hand over to the court information about how the company accounts for bots, its main complaint.)

But that doesn’t mean he’ll get what he wants. Shares of Twitter were down about 5% in premarket trading.

Twitter’s acquisition contract with Musk says he can force him into the deal. Twitter has a right in its contract with Musk called specific performance, which allows a company to take legal action to force completion of a transaction. Assuming regulatory approval, the only solution is that Musk’s debt financing must be in place. Morgan Stanley and other lenders have already taken on $13 billion in debt.

Courts have compelled other companies to pursue acquisitions.

• In 2001, a judge ruled that poultry giant Tyson must complete its $3.2 billion deal to buy IBP, then the nation’s largest beef processor. Tyson said he was unaware of the accounting issues at IBP. But IBP said Tyson just had “buyer’s remorse.”

• More recently, private equity firm Kohlberg & Co. tried to kill a $550 million acquisition of DecoPac, saying the pandemic had caused a “material adverse effect” on the deal. Nonetheless, a Delaware court ordered Kohlberg to make the deal.

• Yet judges have more frequently ordered damages rather than forcing a business or individual to buy a business they no longer want.

But the Twitter-Musk feud would be complicated to oversee in court. A A $44 billion deal eclipses past deals that ended with specific performance clauses. And unlike the Tyson deal, Musk is relying on outside funding to finance his purchase. The banks’ undertakings would likely have to be enforced in a New York court. Banks would be far from eager to lend billions in a deal in which the buyer said he no longer wanted the business. Would they ask a judge in New York to get away with it? Would this judge let them? Would that help Musk off the hook, since specific performance only applies in the case of debt financing? (In the failed merger of chemical companies Huntsman and Hexion in 2008, one of the best-known examples of companies vying for specific performance, the banks backed off but had to pay a settlement.)

What if Musk just doesn’t do what he’s told? A The Delaware court will likely want to force Musk to follow the letter of the law. But his reputation for flouting convention can also make him think. “The worst-case scenario for the court is that they make an order and they don’t comply with it, and they have to figure out what to do about it,” Vanderbilt Law School professor Morgan Ricks told DealBook. . Musk is CEO of a public company. What would such blatant disregard for corporate law mean for investors like Vanguard?

If specific performances aren’t on the table, then what? By most readings of the contract, damages for the deal are capped at $1 billion. But if Musk thinks he might lose and be forced to buy the company, he could offer Twitter a fee, say $5 billion, to walk away. Twitter could also negotiate a lower price and hope Musk will follow if he can pay less. But with Twitter having hired legal powerhouse Wachtell Lipton, it looks like the company is done negotiating and ready to go to court.

HERE’S WHAT HAPPENS

Steve Bannon agrees to testify before the January 6 Committee. Bannon, the former Trump campaign manager and White House adviser who is facing a criminal trial for contempt of Congress, made an abrupt about-face after the former president allowed him to speak to investigators.

Shinzo Abe’s party wins Japanese parliamentary elections. Yesterday’s results, which came two days after the assassination of Abe, the former prime minister, meant his Liberal Democrat Party and their coalition partners had enough seats to form a two-thirds supermajority. It is likely that the new leaders will continue Abe’s longstanding ambition to overhaul Japan’s pacifist Constitution.

Pilots are demanding big increases and quality of life improvements. Two of the major airlines recently offered to raise pilot pay by more than 14% over the next year and a half. Unions are also demanding broader changes they say will improve operations and working conditions, especially as flight disruptions have left pilots frustrated and overworked.

Sri Lanka faces a power vacuum as leaders disappear. After tens of thousands of protesters stormed the President’s home and office, as well as the Prime Minister’s house over the weekend, President Gotabaya Rajapaksa and Prime Minister Ranil Wickremesinghe remained in hiding.

The FDA will get the first over-the-counter birth control pill application. A Paris-based company, HRA Pharma, plans to apply to the FDA today to clear its pill for over-the-counter sales in the United States. Most drug requests go unnoticed in Washington, but HRA’s official request comes at a particularly difficult time. moment of the campaign for reproductive rights.

Florida targets DEI training

A new Florida law that could limit employers’ ability to require diversity, equity and inclusion (DEI) training threatens to become the latest flashpoint for companies trying to deal with legislation hot in an increasingly polarized country.

The “Stop WOKE Act,” signed into law in April by Governor Ron DeSantis, went into effect July 1. It attempts to curb the teaching of topics in businesses or schools that might cause people to feel discomfort, guilt or anguish about a historical event because of their race, gender or national origin.

The Republican-controlled Florida Legislature approved the bill in March. Its focus is critical race theory, a concept that holds historical patterns of racism ingrained in society, which has become a punching bag for conservative politicians. Efforts to limit such teachings in schools have spread across red states.

The companies had pushed back against the bill. Among those who “expressed concern” in a February letter were H&M US, Levi’s and the Greater Miami Chamber of Commerce. “We have a legal and ethical obligation to create safe and fair workplaces by providing meaningful training on workplace issues such as sexual harassment, diversity and inclusion,” a spokesperson said. word of H&M to DealBook. Other signatories contacted by DealBook declined to comment, perhaps aware of DeSantis’ retaliation against Disney for his opposition to the state’s so-called “Don’t Say Gay” education law.

There may be workarounds to the new Florida law. The law does not apply to voluntary programs. And despite the law’s emphasis on programs that could trigger guilt, that’s not how most workplace training programs work, said Jeffrey Siminoff, an attorney who previously ran a global program. of diversity and inclusion at Morgan Stanley. “So there’s a strong likelihood that most programs won’t even violate what Florida seeks to prohibit,” he said.

Can Florida businesses follow the law while striving for diversity? “I think any organization that is committed to inclusion and diversity and trying to visibly support that will have to stop for a moment to understand what their footprint is in Florida,” Siminoff said.

“I can afford things like the occasional beer, but not all I really want, and it’s an awkward position. It’s not the life I wanted.”

— Christian Drake, a 40-year-old retailer, on the number of millennials, even well into their careers, lagging behind the financial and family progress of previous generations.

Focus on windfall tax in the UK

As Britain plunges into a political crisis and Boris Johnson’s administration comes to an end, oil industry leaders are urging the government to make changes to a controversial tax measure aimed at curbing soaring corporate profits oil and gas companies.

The measure had been announced as a way to help raise around 15 billion pounds, or $17.9 billion, to support low-income households with rapidly rising energy bills. MPs are due to discuss the bill today.

Oil and gas companies say imposing a 25% profit tax on them could discourage future investment at a critical time for Britain, which is facing soaring energy prices. “Many financial institutions that lend money to our industry are seeing a government that is sending very mixed signals,” said Mike Tholen, director of sustainability at Offshore Energies UK, an industry body. Tholen, who is seeking to meet new Chancellor of the Exchequer Nadhim Zahawi to discuss possible changes, said the tax would do nothing to lower petrol prices.

Some academics say the warnings from the oil industry are exaggerated. Arun Advani, a researcher at the Institute for Fiscal Studies, told DealBook that some companies’ argument that the tax would reduce their ability to invest in future sources of renewable energy doesn’t hold because those extra profits were unexpected.

The one-off tax plan comes as oil companies post record profits. Shell said it expected to see its refining profits nearly triple, adding $1 billion to its bottom line, as the price of petroleum products rose due to a lack of refining capacity. BP announced its biggest quarterly profit in ten years. In the United States, a group of Democrats are pushing President Biden to adopt a similar policy, but he would face big obstacles in Congress.

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