A DELAWARE judge halted a court case against Elon Musk over his US$44 billion purchase of Twitter Inc, giving the parties more time to complete the deal.
Delaware Chancery Judge Kathaleen St J McCormick said if the transaction isn’t done by 5pm on Oct 28, she will set new trial dates in November, according to an order issued on Thursday.
The ruling hands a partial victory to Musk, who earlier in the day had asked the judge to pause Twitter’s lawsuit against him ahead of an Oct 17 trial date. But it also gives Musk a deadline by which he needs to make good on his April agreement to pay US$54.20 a share — an obligation he previously tried to abandon. Shares in San Francisco-based Twitter rose as much as 3.5% in late trading after the judge’s ruling, a sign of optimism that the order gives Twitter some of the certainty it was seeking.
Acrimony between the parties escalated on Thursday, with both sides trading barbs in court filings. Musk requested a pause in the hearing, saying the social media company “will not take yes for an answer” after he proposed consummating the buyout in an Oct 3 letter. His lawyers targeted an Oct 28 closing. Twitter had objected to the request, saying Musk “can and should” close the deal next week.
Talks between the two sides had snagged after Musk said that his offer was now contingent on receiving US$13 billion in debt financing. The original deal didn’t contain such a contingency. Musk said Twitter was resisting halting court proceedings based on the “theoretical possibility of a future failure to obtain the debt financing.”
— Bloomberg TV (@BloombergTV) October 6, 2022
Following the judge’s ruling, Twitter General Counsel Sean Edgett sent an update to staffers, saying the company won’t be going to court Oct 17 and will work to close the deal by Oct 28 as ordered by the judge.
“Our intention remains the same: To close the acquisition at the price and terms in the original merger agreement,” Edgett wrote in the memo reviewed by Bloomberg. “Thank you to all of the teams working hard to navigate these twists and turns.”
Musk’s lawyers had argued that a short pause would not harm Twitter. “In the event a closing does not occur, the litigation can promptly resume based on the then existing facts and whatever issues remain at the time.” But going ahead with the scheduled Oct 17 trial, and the appeals that would follow, would have caused the deal to take “months” to complete, Musk’s lawyers said.
Twitter said it’s dubious of Musk’s promises, and said that a banker involved in the debt financing testified earlier Thursday that Musk had yet to send them a borrowing notice, and had otherwise not communicated to them that he intended to close the deal. The banker also said that “the main task necessary to close the deal — memorialising the debt financing — could have happened in July but didn’t because Mr Musk purported to terminate the deal.”
“Now, on the eve of trial, defendants declare they intend to close after all,” Twitter said in its filing. “‘Trust us,’ they say, ‘we mean it this time,’ and so they ask to be relieved from a reckoning on the merits.”
Musk’s proposed stay “is an invitation to further mischief and delay,” the platform added. “Until Defendants commit to close as required, Twitter is entitled to its day in Court.”
The two parties had been gearing up for the week-long courtroom battle, which would have determined whether the billionaire had legitimate grounds to torpedo the buyout because of alleged fake user accounts. McCormick ruled against the Tesla Inc. CEO on about a half-dozen pre-trial issues that could have foreshadowed difficulties in making his case in court.
Seven banks, led by Morgan Stanley, fully underwrote the debt portion of the financing, according to an April filing. As is usual in this type of contract, banks originally planned to sell most of that debt to institutional money managers before the Twitter deal closed, but they have always been on the hook for providing the funding if anything went wrong.
There are very few, if any, ways for banks to get out of providing such debt commitments after signing the contract. And most banks wouldn’t want to, even if it meant preventing a loss, because backing out would reflect poorly on their investment banking business and could harm their ability to win new deals with companies and private equity firms in the future.
A representative for Morgan Stanley declined to comment about the Musk deal.
Bloomberg reported earlier that, as part of the talks with Twitter, Musk has also been seeking to reserve his rights to file a fraud suit over his claims the platform’s executives misled him and other investors about the number of spam and robot accounts among its more than 230 million users.
Alex Spiro, an attorney for Musk, said in a statement Twitter had offered to take “billions” off its sale price in exchange for “self-serving conditions” that Musk refused. Twitter hasn’t replied to a request for comment on Spiro’s statement or the deal conditions it’s seeking.
The case is Twitter v. Musk, 22-0613, Delaware Chancery Court (Wilmington). – BLOOMBERG