Page 14 - Delaware Lawyer - Fall 2022

FEATURE | TWITTER V. MUSK
far and away the odds-on favorite for an outcome, a realization that may even have moved Team Musk to finally settle the matter in late October.
What Did We Learn in the End?
We confess that it first struck us as un- likely that we could conjure much in the way of helpful retrospective commentary on a case that never really looked all that hard. Indeed, many of the points offered above do not seem especially controversial. On further reflection, however, we still be- lieve Twitter v. Musk has something to of- fer to those interested in business law (be they transactional or litigation oriented). We offer a few of those insights below.
and advisors used his own Twitter platform to performatively respond to a subpoena with vulgarity.16 Perhaps Musk thought the noise (and the turmoil within Twitter during prolonged litigation) would bring the board to the bargaining table; perhaps he thought he could influence the Dela- ware courts themselves. But the resulting conflict proved to be irresistible catnip for scores of third parties who entered the fray too, offering opinions (both informed and otherwise) that were shared freely, widely and verbosely (in most cases over Twitter itself). The magnitude and scope of the ensuing punditry tended to disrupt what otherwise would have come off as clear- eyed assessments of what would eventually go on in the courtroom.
board transformed in many people’s eyes from a calamitous clown car to prophetic paladins. And notably, they stuck to their guns notwithstanding their modest per- sonal financial stakes in Twitter,19 as well as the likelihood that even if they dropped the lawsuit or settled for a small sum, that decision would receive business judgment deference if subsequently challenged in court. Put simply, they behaved exactly as Delaware expects of boards, relentlessly pursuing the best outcome for Twitter’s shareholders, despite any personal tolls, and without prodding from either a finan- cial carrot or a liability stick.
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Even Simple Cases Can Be Made to Look Harder Than They Are
Despite the media circus and attempts by Musk’s side in particular to blow the dispute up into a far-ranging explora- tion of every aspect of Twitter’s busi- ness, Chancellor McCormick consistently played it by the book, issuing early discov- ery rulings promptly and fairly, refusing to be sidetracked, and maintaining exem- plary control over her courtroom. This surprised absolutely no one who had any prior dealings with her. The straightfor- ward conduct of the litigation ultimately burnished both Chancellor McCormick’s personal reputation, and Delaware’s repu- tation writ large as a no-nonsense litiga- tion venue. That said, it still may have been for the best that Chancellor Mc- Cormick was not forced to go all the way to the finish line of a post-trial decision — a process that would have taken many distraction-laden months.
4. The Mystery of the Merger Arbs
Despite the seeming weakness of Musk’s case — as recognized by almost ev- ery legal commenter — the spread between Twitter’s market price and the $54.20 deal price remained enormous until nearly the very day the deal finally closed, suggest- ing that outside of Delaware courtrooms, Musk can still bend gravity in many ways. Beyond throwing (more) general shade on the Efficient Capital Markets Hypothesis as a dependable prophet of pecuniary val-
While the annals of M&A history are replete with examples of remorseful parties groping to find an escape hatch for signed deals, this history typically does not also involve the richest person on the planet. Musk had effectively unlimited resources, coupled with a reputation for fighting endlessly and pugnaciously — often in open defiance of legal requirements — yet frequently coming out on top anyway. Though his case seemed doomed all along on the merits, even a tiny sliver of doubt, particularly about the specific performance remedy, may have rendered worthwhile the hundreds of millions in legal fees ex- pended (not only on his side, but on Twit- ter’s too, since once the deal closed those expenses would effectively become Musk’s to bear). Musk could (and did) try to use every bit of that leverage, commencing a prolonged battle, possibly to negotiate a re-cut deal, a termination settlement, or maybe even to shoot the moon and escape the deal entirely.
At the same time, Musk evidently thought there was something to be gained from litigating his case in the court of pub- lic opinion. He used his public platform on Twitter to accuse Twitter and its executives of fraud and to disparage the company’s efforts to fight spam. One of his friends
In the early days of the saga, the Twitter board appeared to be a hapless victim of Muskian manipulation. At first, they were objects of ridicule for acceding limply to a semi-sophomoric $54.20 bid; and even when they looked slightly more prophetic as the tech sector slouched, some com- menters were still betting that they would quietly walk away for a billion-dollar break fee rather than endure Musk’s public barbs. For example, Kara Swisher pre- dicted that the board was “scared,” and wanted to “get out of this. They want to get him away from them. What I’d ask is for him to sell back his shares. He sells his shares, maybe at a loss, pays the billion dol- lars and goes.”17
Had the board slunk away so meekly, of course, they would have reinforced the general perception of their passivity, maybe even inviting a different species of litiga- tion from Twitter’s public shareholders. Instead, however, fight triumphed over flight, as the Twitter board pluckily refused (according to some reports) any attempt to recut the price;18 and, in stark contrast to Musk’s mercurial outbursts, they held steady with a strategy of litigating in court filings rather than in in the public arena. As this strategy began to rack up wins during preliminary hearings, the Twitter
12 DELAWARE LAWYER FALL 2022
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A Stress Test for the Twitter Board
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A Victory for Delaware