After hearing argument today, Delaware Chancellor Kathaleen St. Jude McCormick granted Twitter’s
motion to expedite its specific performance merger termination suit against Elon Musk and directed the parties to prepare for a five-day trial in October 2022. Chancellor McCormick concluded today that the longer the “overhang” of the potential merger exists, the greater the potential for irreparable harm to Twitter as a public company.
Reorg's live blog of today's hearing is available
HERE for Reorg subscribers.
On July 12, Twitter
sued Musk and two acquisition entities and asked the court to order him to purchase Twitter pursuant to the terms of the merger agreement for $54.20 per share, or about $44 billion. Both sides agreed that the proceeding should be expedited, but they differed on the time frame and time required for trial: Twitter sought a four-day trial in late September, while Musk
proposed a 10-day trial in mid February 2023 - two months before Musk’s financing commitments expire. Chancellor McCormick elected to hold the trial close to Twitter’s proposal, citing the potential harm to the company and typical chancery court scheduling in “busted deal” cases involving public companies and a specific performance remedy.
During today’s arguments, Musk counsel Andrew Rossman of Quinn Emanuel emphasized the complexity of the case and the April 2023 financing drop-dead date. Rossman specifically focused on Musk’s assertion that Twitter misrepresented in SEC filings that less than 5% of its monetizable daily active users, or mDAU, are bots, spam accounts or otherwise “false accounts.” According to Rossman, resolving this issue will require reviewing and analyzing “billions” of transactions on the Twitter platform, which cannot be done in a short time frame.
Rossman also accused Twitter of refusing to provide Musk with sufficient data to evaluate the claim of 5% or less mDAU. Instead of providing transparency, Rossman said, Twitter responded to Musk’s inquiries with “obfuscation,” “delays” and “excuses.”
Rossman further called allegations that Musk decided not to close the deal due to market conditions rather than mDAU concerns “nonsense” and labeled the mDAU allegation a “serious issue” for Musk. Musk knew there were spam and bots on Twitter before the deal, Rossman acknowledged, but relied on Twitter’s repeated representations of fewer than 5% mDAU in SEC filings. Rossman noted that just days after the agreement, Twitter revised its mDAU false account figure upward, and he cited tweets from the company’s CEO suggesting it removes more than a million false accounts every day.
Twitter counsel William Savitt of Wachtell denied that Twitter made any representation of 5% mDAU to Musk or in its SEC filings, pointing to “clear as day” language in the company’s 10-K warning that the true false account figure could be higher than 5%. The “complex technical discovery” Musk says is needed to determine whether more than 5% of Twitter's mDAU are bots or spam accounts is “emphatically and plainly not before the court in this case,” Savitt asserted.
The issue “isn’t and can't be” false accounts, Savitt continued. “Nothing in the merger agreement turns on that issue,” Savitt said, and this is a litigating position “made up out of whole cloth” by Musk in order to delay trial.
Savitt also denied that Twitter had failed to provide information reasonably requested by Musk. In the three months after the agreement, Twitter provided an “astounding” amount of information to Musk, Savitt said, including a “firehose” of all data related to every tweet. Musk has run “millions of searches” on this data, Savitt added.
In support of Twitter’s request for a September trial, Savitt emphasized what he called Musk’s attempts to disparage Twitter. He focused on Musk’s calls for the SEC to investigate Twitter over its claims related to false accounts on the platform, which Savitt called a clear breach of Musk’s “best efforts” obligation under the agreement and an attempt to “sabotage” the deal.
Rossman called Twitter’s disparagement accusations “preposterous,” pointing to Musk’s large existing holdings in the company. According to Rossman, Musk merely pointed out that the company had breached the merger agreement, which is “par for the course” in “busted deal” cases.
Musk is also in “limbo” while the deal is litigated, Rossman continued, and has “arguably more risk at stake” than Twitter does. “He doesn't have an incentive to keep this hanging for a long time,” Rossman concluded.
Chancellor McCormick, however, found that a February 2023 trial would not allow sufficient time for her or the appellate courts to rule and the parties to close the deal prior to the expiration of Musk’s financing commitments. Further, the judge noted that typically, “busted deal” cases involving public companies are resolved by the chancery within 60 to 90 days of filing. Chancellor McCormick expressed confidence that counsel would be able to conduct sufficient discovery to prepare for a trial in October.