Twitter v. Elon Musk – Part 2: The Outer Limits Of Access To Information Covenants – Corporate and Company Law

Josh Lavine (00:05): I will provide an overview of the access to information agreement commonly found in M&A agreements, the specific dispute that arose in the Twitter transaction and some immediate steps for M&A practitioners and the access to information clause is a very standard provision in purchase agreements. As Andrew explained, it offers a target company during the period after signing the purchase agreement and before the transaction closes, the opportunity to request additional information about the company or its business. It’s not a provision that tends to be at the top of the list in terms of the most contentious or heavily negotiated, and that’s because it’s generally understood that a buyer often has more work to do after entering into the purchase agreement that may require additional. information. For example, the buyer may need to make additional efforts to secure financing, the buyer may need to prepare for closing and any required filings or disclosure obligations the buyer may have, and integration planning may be required after completion. transaction. But it’s also common for there to be limits on the information a buyer can request. For example, requests for information must usually be reasonable and must comply with the law and any confidentiality obligations the target may have, and cannot unreasonably interfere with the operation of the target’s business. In the Twitter merger agreement, Twitter agreed to provide additional information about Twitter and its business “as reasonably requested by Mr. Musk for any reasonable business purpose in connection with the completion of the transaction.” The question at the heart of this dispute is the intended purpose of this right of access. More specifically, whether the phrase “in connection with the completion of the transaction” should be interpreted narrowly, or as described by Twitter in a letter to Mr. Musk’s lawyer, for “the very specific purpose of facilitating the closing of the transaction.” Or whether, as Mr. Musk may prefer, access rights should be interpreted broadly to allow Mr. Musk to conduct due diligence to investigate an alleged or suspected breach of representation. In a response from Mr. Musk’s lawyers on Twitter, it was noted that Mr. Musk specifically negotiated this right of access precisely so that he could do due diligence after signing the deal. We expect that most target companies would be uncomfortable with such a broad interpretation of this right of access for several reasons. First, due diligence is generally performed before a binding agreement is entered into and declared, not afterward. And Twitter’s merger agreement does not contain a due diligence termination clause. The access agreement is generally not thought to give the buyer an opportunity for a “second kick at the can,” so to speak with due diligence. And secondly, and perhaps more importantly, the target will not want to put itself in a position where it is required to provide potentially endless information to a buyer who may actually be looking for a reason to terminate the purchase agreement. and especially a buyer like Mr. Musk, who as Andrew noted, suggested he might want to build a rival social media platform. Here in Canada, this issue was recently considered by the Ontario Superior Court of Justice, in its Fairstone Financial/Duo Bank decision. In that case, the buyer submitted numerous information requests to the target, many of which were filed after the buyer alleged a breach of the purchase agreement. And the court in Duo found that many of these requests were not legitimate requests for information and did not require closing the transaction. It will be interesting to see how the Delaware Court handles this key issue between Twitter and Mr. Musk. But in the meantime, I think the main takeaway for M&A practitioners is to pay attention to the drafting of the access agreement, and more specifically, to avoid open-ended agreements that grant the right to “all information requested” or “all information reasonably. required” without also specifying the purpose for which the information may be required. And when determining purpose, consider directly addressing whether the acquirer may request information for purposes of verifying any representations and warranties in the purchase agreement and whether the target is required to provide information if the acquirer is in breach of the acquirer’s agreement, or if the target has a basis reasonable to believe that the buyer no longer wishes to proceed with the closing. And so the question for now is where is Twitter’s case likely to go from here?