Elon Musk is abandoning his legal battle to back out of buying Twitter and now offering to go through with his original $44 billion (€44 billion) bid for the social media platform.
The mercurial Tesla CEO made the offer in a letter to Twitter, Musk disclosed in a filing on Tuesday with the US Securities and Exchange Commission.
The offer comes just two weeks before Twitter's lawsuit seeking to force Musk to go through with the deal goes to trial in Delaware Chancery Court.
The filing says he'll complete deal as long as he gets debt financing and provided that the court gets rid of the lawsuit.
In response, Twitter said it intends to close the transaction at $54.20 (€54.34) per share after receiving the letter from Musk. But the company stopped short of saying it's dropping its lawsuit against the billionaire entrepreneur.
“I don’t think Twitter will give up its trial date on just Musk’s word - it’s going to need more certainty about closing," said Andrew Jennings, professor at Brooklyn Law School, noting that the company may also be worried about Musk's proposal being a delay tactic. After all, he's already tried to unsuccessfully postpone the trial twice.
'An accelerant to creating X, the everything app'
Trading in Twitter's stock, which had been halted for much of the day pending release of the news, resumed trading late on Tuesday and soared 22 per cent to close at $52 (€52.13). That's still below the price of $54.20 in Musk's offer.
Musk remained quiet about the news on Twitter until late Tuesday afternoon, when he tweeted that “Buying Twitter is an accelerant to creating X, the everything app” without further explanation.
His U-turn is the latest twist in a high-profile saga involving the world’s richest man and one of the most influential social media platforms.
Much of the drama has played out on Twitter itself, with Musk - who has more than 100 million followers - lamenting that the company was failing to live up to its potential as a platform for free speech and had too many fake accounts, or "bots".
'His case didn't look that strong'
By going through with the deal, Musk essentially gave Twitter what it was seeking from the court: “specific performance” of the contract with Musk, meaning he would have to go through with the purchase at the original price. The contract Musk signed also has a $1 billion (€1 billion) breakup fee.
Eric Talley, a law professor at Columbia University, said he’s not surprised by Musk’s turnaround, especially ahead of a scheduled deposition of Musk by Twitter attorneys starting Thursday that was “not going to be pleasant.”
“On the legal merits, his case didn’t look that strong,” Talley said. “It kind of seemed like a pretty simple buyer’s remorse case.”
If Musk were to lose the trial, the judge could not only force him to close the deal but also impose interest payments that would have increased its cost, Talley said.
What did surprise Talley is that Musk doesn’t appear to be trying to renegotiate the deal. Even a modest price reduction might have given Musk a “moral victory” and the ability to say he got something out of the protracted dispute, Talley said.
Battle over Twitter spam bots
Musk has been trying to back out of the deal for months after signing on to buy the San Francisco company in April. Shareholders have already approved the sale, and legal experts say Musk faced a huge challenge to defend against Twitter's lawsuit, which was filed in July.
Musk claimed that Twitter under-counted the number of fake accounts on its platform, and Twitter sued when Musk announced the deal was off.
Musk’s argument largely rested on the allegation that Twitter misrepresented how it measures the magnitude of “spam bot” accounts that are useless to advertisers.
Most legal experts believe he faced an uphill battle to convince Chancellor Kathaleen St. Jude McCormick, the court’s head judge, that something changed since the April merger agreement that justifies terminating the deal.
Why has Elon Musk changed his mind at this time?
Legal experts said Musk may have anticipated that he would lose the upcoming court case.
Things haven't been going well for him in court recently, with the judge ruling more frequently in Twitter's favour on evidentiary matters, said Ann Lipton, an associate law professor at Tulane University. The judge has denied several of Musk’s discovery requests, Lipton said.
It's also possible that Musk's co-investors in the deal were starting to get nervous about how the case was proceeding, she said.
Musk’s main argument for terminating the deal – that Twitter was misrepresenting how it measured its “spam bot” problem – also didn’t appear to be going well as Twitter had been working to pick apart Musk’s attempts to get third-party data scientists to bolster his concerns.
Twitter now has options in the case and doesn’t necessarily have to accept a new offer from Musk, said Robert Anderson, a law professor at Pepperdine University.
“Twitter could still be concerned that the same thing might happen again without some additional security,” Anderson said. “They’re going to want some assurance that the deal is going to happen right away."
Columbia's Talley said he would insist on Musk putting money into an escrow account until the deal is completed. Such an account could hold cash and/or Twitter shares, as a good-faith demonstration by Musk, Talley suggested.