Like countless other contract disputes, Twitter’s ( TWTR ) clash with Elon Musk over the Tesla ( TSLA ) CEO’s attempt to get out of his $44 billion deal to buy the social media company is triggering language that could be open to multiple interpretations.
However, don’t expect Twitter or Musk to admit that the lawmakers laying out the terms of their merger agreement leave the slightest ambiguity about their respective rights.
After publicly taunting Twitter with the threat of a hostile takeover, and forcing the board’s hand with a price too good to refuse, Musk agreed to the sale based on a merger agreement drafted by some of the most expensive lawyers possible. to be bought with money. Within weeks of signing the contract, Musk hinted that he had cold feet and then terminated the deal, citing suspicions that Twitter’s platform suffered from a higher-than-reported prevalence of fake accounts of less than 5%.
Twitter claims in a complaint against Musk that the deal allows it to reject Musk’s demands and force him to buy the company. Musk’s lawyers, for their part, say he can drop the deal entirely because Twitter’s rejections qualify as a material breach — and possibly a “material adverse effect” that would void the deal. In a July 8 cease-and-desist letter, Musk’s lawyers called the bot’s data “fundamental to Twitter’s business and financial performance” and necessary to complete the deal.
Twitter instead says Musk is using the bot request as a pretext to back out of the deal, noting that the Tesla CEO has repeatedly disparaged Twitter on the platform itself. Twitter also notes that Musk’s premium buyout offer of $54.20 per share is well above the stock’s most recent value — the company’s stock was trading at $37.74 at the market close on Friday.
“Space for Arguments”
Despite competing claims, the current merger document does not explicitly mention bot data. It outlines broad terms regarding Musk’s right to access the information until the deal closes, and Twitter’s right to retain it.
“Certainly there will be room for argument,” Widener University Delaware School of Law professor Lawrence A. Hamermesh told Yahoo Finance.
A high prevalence of fake accounts would threaten the foundation of Twitter’s revenue stream — advertisers pay to reach real, human, non-bot account holders. A higher bot rate than Twitter claims could scare off investors, advertisers, and perhaps even users, because bots can drive down genuine ad impressions and spread misinformation.
As of the fourth quarter of 2021, the company’s regulatory filings state that fake or “spam bot” accounts represent less than 5% of its user base.
For Musk’s part, his lawyers argue that under a contract provision, Twitter was willing to hand over enough data to enable him to independently assess the incidence of fake accounts.
In support of his claim, his lawyers cite language in the contract stating that Twitter must provide him with “reasonable access” to Twitter’s “property, books and data” and immediately provide him with “all information about Twitter’s business, properties and personnel” for any “reasonable business purpose in relation to consumption” (emphasis added) of the transaction.
“That section gives Musk some rights to get information,” Hamermesh said. “But it’s not carte blanche, free-for-all access to information.” The language, he explains, presents obstacles for Musk to show that he needs the data for a “reasonable purpose” that is “related” to closing the deal.
“What is a reasonable business purpose? What does it matter?” he asks, explaining that those questions, if the dispute is resolved in court, will be decided by the judge. However, he says, “I’m sure there’s a lot of room to argue both sides of this.”
Twitter is likely to argue that the type of information Musk is seeking is not covered by the contract language and that Musk could have requested data about the bots before agreeing to the merger agreement, Hameresh said.
“It means what the trier of fact will say”
To further muddy the waters, Twitter also cites incorrect contract language to argue that it is free to reject Musk’s requests.
The company points to a provision that allows it to withhold information if it determines in its “reasonable judgment” that disclosure of the data would “cause significant competitive harm” to Twitter if the deal is not closed. In other words, Twitter may decide that there is too much risk of competitive harm to Twitter if Musk fails to buy the company and is left to retain tools for evaluating fake account data.
Even this language leaves room for interpretation. What is “reasonable?” What is “important?”
Columbia Business School senior lecturer Donna Hitscherich says resolving these questions through litigation is a risk for Twitter and Musk because the judge will have to interpret the meaning of ambiguous terms in the merger agreement.
“In reality, it means what the trier of fact says,” Hitscherich said.
In addition to retaining the right to reject Musk’s requests outright, Twitter says the deal further insulates it from handing over the data because Musk waived his right to due diligence — the right to receive certain information. proprietary on Twitter. The lack of a due diligence clause in the contract, they claim, means Musk has no right to demand bot data as a condition of buying the company.
Musk’s lawyers contend that he did not actually waive his right to review the records.
If Twitter and Musk don’t resolve their dispute, Delaware Court of Chancery Chief Judge Kathaleen McCormick will be left to interpret the contract. Before that, Musk will have a chance to respond to Twitter’s accusations that he tried to scuttle the deal in a response to the company’s complaint.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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