Elon Musk wants to force Twitter to extradite a group of key employees for questioning — and the legal maneuver could be the mogul’s last and best hope in a desperate fight to derail his $44 billion acquisition deal.
Twitter’s shares are up more than 20% over the past month, closing at $44.26 on Friday, suggesting Wall Street is becoming increasingly confident that Musk will be forced to take over Twitter at a price that looks like a stratospheric price now after tech stocks plummeted over the summer. The rising share price has also reduced the ability to trade down Twitter’s price.
In the latest sign Musk is willing to pay, earlier this month the billionaire sold $6.9 billion worth of Tesla stock, which he admitted “in the event (hopefully unlikely) that Twitter goes through with that deal.” Closing *and* forcing some equity Partners don’t pull through.”
But in a legal move Musk’s team hopes could turn the tide, his lawyers on Tuesday accused Twitter of trying to hide which employees are responsible for evaluating spam accounts on the site — and demanded Delaware Judge Kathaleen McCormick previously called for forcing Twitter to identify her for questioning, a source close to the case told The Post.
The source said McCormick is expected to respond to the request this week.
If she sides with Musk, she would give the mogul a much-needed win, University of Iowa chair of corporate finance and law Robert Miller told The Post.
Miller said the strategy may still be a long shot, but surveying employees is Musk’s best chance to prove his argument that Twitter knew it had a problem with bots and chose to cover it up. If Musk is successful, Twitter’s actions would be interpreted by a court as fraud and allow Musk to walk out of the deal scot-free, Miller said.
Elon Musk has focused his legal strategy on allegations that Twitter has covered up a problem with bots. AP
“Elon needs to show that not only is the fake account number wrong, but that they knew it was wrong,” Miller said. “If he wins the cheating allegations… the merger treaty would no longer apply.”
Miller said McCormick is likely to grant Musk’s request because it could increase the chances that her decision — if she rules against Musk — would be overturned on appeal.
But JB Heaton, an investment researcher and former corporate attorney, sees things differently. He told The Post that Musk’s foray into interviewing Twitter employees was tantamount to a “fishing expedition” — and that the mogul’s single-minded focus on bots has turned his case into a “slow-motion train wreck.”
“You’re doubling down on a bad strategy,” Heaton said. “He got in, got cold feet, and decided, ‘I’m going to try to use bots as my problem.’ Nobody buys it.”
Instead of making the “colossal mistake” of wasting their time arguing that Musk can terminate the contract because of his concerns about bots, the mogul’s lawyers should accept that the Delaware Court of Chancery will almost inevitably rule against him, and focus on minimizing damage, Heaton said.
They would accomplish this by focusing on a provision in the contract that caps any termination fee at $1 billion — a drop in the ocean compared to the $44 billion deal Twitter is trying to push through. According to Heaton, Musk’s attorneys should argue that Musk should pay the fee and that requiring him to buy the company — a measure known as specific performance — “would turn contract law on its head,” Heaton argued .
While that might be a more compelling argument in the eyes of Judge McCormick and the Delaware Supreme Court, Musk’s attorneys would also need to confront the billionaire signing their checks and tell him his main argument is a stinker.
Musk’s team asked Delaware Judge Kathaleen McCormick to force Twitter to identify employees for questioning, a source close to the case told The Post.Getty Images
“Litigation is a hotbed for over-optimism,” Heaton said, adding that there’s a “very good argument” for abandoning trying to outright beat Twitter and instead focusing on controlling the damage.
However, Miller sees this argument as a non-starter. He said Musk should focus on arguing the bot issue because if Delaware rules against Musk, it’s almost certain that it will order him to buy the company through a specific feat.
That possibility makes Musk’s recent stock sales “very rational,” Miller said.
“Elon, who is selling shares, tells me that if he loses, he plans to comply with the court order,” he said.