Twitter and Elon Musk are headed to court in Delaware unless the parties can reach a settlement over Musk’s attempt to get out of his $44 billion deal to buy the social media company.
The outcome of this flame war between Musk and Twitter has enormous consequences: The lawsuit will determine who controls one of the world’s most important platforms for speech and how the company, which has struggled long before Musk, will make money and continue to grow. And if a judge ends up issuing a ruling in the case, it will influence American mergers and acquisitions for decades to come.
So, what’s the best case scenario for Twitter here? Or, rather, what’s the least bad scenario for Twitter?
“Twitter will be worse off”
If the case goes to court, one of these three outcomes is most likely:
- The judge could enforce “specific performance,” which Twitter is asking for, and force Musk to complete the $44 billion deal.
- The judge could find that Musk breached his contract and make him pay the $1 billion termination fee.
- The judge could find in favor of Musk — that Twitter’s spam bot numbers represent a “material adverse effect” on its long-term ability to make money, or that Twitter hasn’t provided the necessary information for Musk to close — and Musk is allowed to walk away without paying a cent.
But the alternative is an out-of-court settlement. While Twitter and Musk could negotiate the sale price down to make it more palatable for Musk, it’s perhaps more likely that Twitter wants Musk to pay a lot more than $1 billion to walk away.
“It appears that Musk has caused a lot of damage in terms of internal chaos and public disparagement, and so if Musk does not buy the company, and does not pay a very large dollar figure in settlement, Twitter will be worse off simply as a functioning business,” Ann Lipton, a corporate law professor at Tulane University School of Law, wrote in an email.
“It’s too powerful a platform”
Twitter’s board has a fiduciary responsibility to its shareholders — that’s why it took the original deal, and why it’s going to court to enforce it — but Twitter isn’t just any profit-making business. It’s a globally important platform for communication.
One of his primary rationales for buying Twitter in the first place, which he hasn’t mentioned in recent months, was a personal crusade for “free speech” on the platform, alleging that the company’s content moderation efforts were censorious. (As a private company, Twitter has its own speech rights and can largely moderate user-generated content generally as it sees fit.)
In May, the liberal advocacy group Media Matters for America signed onto a letter urging advertisers to boycott a Musk-owned Twitter that scaled back content rules that help curb misinformation and hate speech on the platform. “Under Musk’s management, Twitter risks becoming a cesspool of misinformation, with your brand attached, polluting our information ecosystem in a time where trust in institutions and news media is already at an all-time low,” the letter said. “Your ad dollars can either fund Musk’s vanity project or hold him to account.”
Angelo Carusone, the president and CEO of Media Matters, said in an interview with Quartz that the best case scenario now for Twitter is that it settles out of court with Musk, lets him walk away, collects as much cash as it can, while wrapping up this chapter in its history as quickly as possible. “Then they have some time and source to reassure advertisers, which is their primary revenue stream, and hopefully they don’t fumble and stumble and screw up the misinformation, disinformation, and extremism as we move into a midterm election cycle,” he said.
Jennifer Grygiel, an associate professor of communications at Syracuse University who researches social media and has worked in capital markets, has similar concerns about a Musk-owned Twitter. “It’s too powerful a platform,” Grygiel said, noting its importance in political conversation even among politicians and world leaders.
“Any scenario where Musk walks away is better for society,” they added. “The last thing we need is another controlled social media platform” like with Meta, of which founder and CEO Mark Zuckerberg has majority voting control.
A large settlement for Musk to walk would make sense. Twitter will likely face more than $1 billion in losses from a depleted stock price should Musk not buy the company at $54.20 — and Musk could further sink the stock by dumping his 9.5% stake, which he accumulated by flaunting federal reporting requirements.
“Nobody wins”
Everyone associated with this deal is losing.
Twitter’s management is in over its head. Its staff is leaving and hiring is frozen. Its advertisers don’t want to spend money until the drama is resolved, which is hurting Twitter’s business. And Twitter’s board is still trying to save face, avoid legal liability, and keep the company’s value afloat by suing to force Musk to buy the company.
Musk is losing because he has agreed to buy the company for $44 billion and now wants to abandon ship. He has a paltry legal case because he proposed and pressured the sale at the agreed-upon price, lined up financing for it, signed a binding agreement to buy it — not just pay damages — and now wants out. Musk’s other companies — Tesla and SpaceX — and his lenders and investors are all worse off because this deal has turned into a public charade.
In an analyst note on July 13, the day after Twitter filed suit, Wedbush analyst Daniel Ives called the entire ordeal a “black eye for Musk and horror movie for Twitter.”
“Nobody wins,” said Donna Hitscherich, a finance professor at Columbia Business School who has worked as a corporate lawyer and investment banker, in an interview. “People do deals to do the deals. They don’t do deals to litigate, they don’t do deals to collect breakup fees. They do the deal because they thought the deal made sense.”
“Who’s gonna really win here is the lawyers,” she said.