Q&A with The Chancery Daily editor
Now that Elon Musk has officially acquired Twitter, we'll never get the Delaware courtroom showdown we were once promised. But the case was indisputably one of the most closely watched merger and acquisition disputes, with huge precedent-setting potential.
Why it matters: The lawsuit leading up to it was a unique opportunity for experts and mainstream observers to examine underlying legal concepts, says Lauren Pringle, editor-in-chief of The Chancery Daily newsletter.
This interview with Pringle has been edited for brevity and clarity.
From a legal standpoint, how much of this lawsuit was unusual, and how much was common stuff that comes through the court all the time?
It was actually not common M&A stuff that comes through the court…It was the biggest busted deal case, with $44 billion on the line, but it was fairly simplistic… There was not a lot of nuance… The more that we learn[ed], the less interesting the case became.
Talk me through Elon’s legal arguments.
It was always going to be hard to convince this court that the richest man got duped into signing a contract. When you can afford lawyers like Musk can afford… you are held to the highest absolute standard of knowing what the f*ck you’re doing… In 2018, Twitter settled a case about the disclosure about [monetizable daily active users]… You could have discovered that there’s been controversy over Twitter’s reporting of mDAU for at least 5 years…
The breach of contract claims were that Twitter didn’t operate in the normal course of business… Again, every time facts were revealed… the facts were almost universally good for Twitter and bad for Musk.
What do you think it would have added as far as setting any precedents, or strengthening any?
The issue of granting specific performance on a $44 billion deal — you can’t just say “well, the dollar amount doesn’t matter”… The merit case was very weak, but the remedy case was pretty interesting… especially if it had gone to the Delaware Supreme Court — and it would have definitely strengthened precedents over specific performance…
[Chancellor Kathaleen McCormick] would have ordered Musk to perform on the debt financing even though he delayed it over litigation and the market crashed. It came up in the Luigi Crispo case [about shareholders]. There’s a case to be made that the debt financing is a condition to closing… And Musk could make the case that this fell [apart] through no fault of his own, but when he was not into [the deal], he was really not into it, [for example, bashing the company publicly].”
When Chancellor McCormick halted the proceedings to let Twitter and Musk close the deal, a lot of people were surprised. Why?
Any judge wants first and foremost for the parties to negotiate their way without the court… I think the court was incredibly overwhelmed… From a very practical standpoint, it was not working to be pushing so hard to a trial — she hadn’t assigned herself any other case in months at this point, and she’s also the chancellor, so she has all these administrative duties…
There was this good logical case to stay the case… The irreparable harm to Twitter had already happened or wouldn't have been materially altered by another two weeks. It was worth it because all that we were giving up was a two-week delay. If this had turned out to be a game, she could have handled that — she has the power to handle that.
What other cases involving Elon do you think are important or significant?
The case that’s real and I think hugely important is the Tornetta vs. Musk compensation case that’s actually set to go to trial on Nov. 14, I think. It’s in front of McCormick. Musk has already been deposed.
They’re basically trying to rescind compensation from Elon in unprecedented amounts. [The debate is whether] tying the compensation to the performance of the stock was a breach of duty.
🎧 Check out How it Happened: Elon Musk vs. Twitter — Axios’ new podcast docu-series about how Musk built his cross-industry empire, the rise of Twitter, and what the collision between the two could mean for us all. Listen here.