4 Reasons Why This Analyst Says Twitter Has a Legal Edge Over Elon Musk

By Benzinga
Benzinga
Benzinga
July 20, 2022 Updated: July 20, 2022

The Twitter Inc. vs. Elon Musk legal showdown has begun after the social media platform’s filed a lawsuit against Musk in the Delaware court of Chancery.

Twitter has a 60 percent chance of winning a court order to enforce a take-private deal by Musk, according to Bloomberg Intelligence Litigation analyst Matthew Schettenhelm, who said he expects the court decision to come through in the fourth quarter.

Schettenhelm gave four reasons why a Twitter victory in the litigation is highly probable:

1. Musk May Struggle to Prove Material Breach

Musk’s termination letter dated July 8 doesn’t lay out a strong case, with the best point being Twitter breached its duty to share data. Although Musk did not get all the data he sought for, he may still “struggle to prove a material breach,” Schettenhelm added.

2. Musk May Have Did Himself In

The biggest risk Musk is facing now is that he agreed to a “specific performance” clause, Schettenhelm explained. This lets a court close the deal at the initially agreed upon $54.20 per share, provided debt financing is funded and Twitter has met other conditions.

The contract provides for the court forcing Musk to fund the equity portion of the financing.

“Specific performance is thus more important to the legal fight than damages, which the parties capped at $1 billion,” Schettenhelm added.

3. High Cost of Settlement

Musk may have to pay Twitter a settlement between $5 billion and $8 billion if the deal doesn’t go through, Schettenhelm estimates. Twitter has a legal duty to shareholders to fight for the original deal value or demand a fair settlement.

If Twitter has a 60 percent chance of enforcing Musk’s $54.20-per-share deal, Twitter should insist that the Tesla Inc. CEO cover about 40 percent of shareholders’ $14 billion or more losses tied to the withdrawal of that price, the analyst said.

4. Bots Can’t Be Excuse

Musk’s repeated claims that Twitter misrepresented how many accounts are inauthentic won’t give him a way out to walk away from the deal, the Bloomberg analyst said. It’s highly unlikely that Musk can prove the bot count misrepresentation has a material adverse effect.

The analyst noted that Twitter has long disclosed the difficulty in measuring accounts.

“Even if there were a significant misrepresentation, we believe Musk would struggle to show it threatens Twitter’s long-term earnings potential,” Schettenhelm said.

By Shanthi Rexaline 

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