Page 16 - Delaware Lawyer - Fall 2022

Chancellor Kathaleen St. J. McCormick
ue, the stubborn durability of Twitter’s arb spread raises important questions about its specific drivers here: Was it because arbi- trageurs feel uncomfortable making legal judgments — and lawyers simultaneously feel hesitant to quantify outcome prob- abilities? Was it because of limitations to arbitrage that volatile market conditions fomented? Was it because Musk’s army of slavish followers created an aura of invinci- bility? Did Musk’s specific appeal as an in- solent, norm-busting, fabulously wealthy techno-bro inculcate a gendered halo ef- fect that systematically afflicted the other finance-bros who make most of the key decisions for merger arbs and hedge funds? This mystery may be one that lawyers, fi- nancial analysts and sociologists will take years to unpack.
5. A Bigger Challenge for Corporate Law
Ultimately, however, we think the big- gest challenge and puzzle that Twitter v. Musk leaves on the table is for corpo- rate law itself. At its core, the purpose of corporate law is to create value — not to destroy it. And though there have been mergers that resulted in value destruction before, in those cases the legal structure provided a glide path for the deal while remaining largely in the background. Here, however, the legal merits largely determined the eventual outcome. It is clear to all (and even Musk himself) that the ultimate decision to close the deal on
its original terms crystalized within an ominous shadow of a likely court loss. And yet, other than the now-departed public shareholders of Twitter, it is dif- ficult to know whether anyone has been made better off from the deal’s closing. And in this regard, the effects on Twitter as a business tell us something about the social utility of corporate law.
As of this writing, of course, it’s still too early to tell what path lies ahead for Twit- ter. Musk has caused considerable turmoil and has made many unforced errors thus far in his stewardship of the company; but his champions maintain that there is (or will be) a method to his madness. If Musk succeeds in making Twitter thrive — or even fulfills his ambitions to grow the platform into an “everything app” — it could serve as an important validation of corporate law. If he ends up destroy- ing it, in contrast, it is difficult to sidestep the conclusion that Delaware — despite what seems like a resounding victory in confirming contractual commitments — may also have stumbled into an unforced error of its own.
NOTES
1. https://www.sec.gov/Archives/edgar/ data/1418091/000110465922042863/ tm2211757d1_sc13d.htm
2. See Matt Levine’s Money Stuff, “Sure Elon Musk Might Buy Twitter” (April 15, 2022).
3. See Item 1.01 of the merger announcement, available at https://www.sec.gov/Archives/ed- gar/data/1418091/000119312522120474/ d310843ddefa14a.htm.
4. Id.
5. Hexion Specialty Chems., Inc. v. Huntsman Corp., 965 A.2d 715, 738 (Del. Ch. 2008).
6. AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC, 268 A.3d 198 (Del. 2021). 7. See Merger agreement, supra note 3, at Sec- tion 4.25.
8. These declarations are a bit complicated to unpack. Twitter’s SEC filings stated that, in its judgment, no more than 5% of mDAU consist- ed of spam accounts. Musk repeatedly insisted that any platform user would conclude that more than 5% of Twitter’s users were spam. But Twitter only represented that it believed its mDAU counts — its estimate of the number
of monetizable users — were not off by more than 5% due to spam; it made no representa- tions about how much spam on the platform existed alongside monetizable users, such that a user would encounter it in day-to-day usage. Musk’s repeated conflation of Twitter’s repre- sentations regarding its mDAU counts, versus the amount of spam on the platform in total, either demonstrated that Musk did not rely on the mDAU numbers because (as he claimed) they were facially false, or that Musk did not rely on the mDAU numbers because he did not understand how they were calculated.
9. Wind Point Partners VII-A v. Insight Equity A.P. X Co., 2020 WL 5054791 (Del. Super. Aug. 17, 2020)
10. “The Securities Act” Texas Acts 1957, 55th Leg., p. 575, ch. 269, Sec. 1.
11. See Twitter v. Musk, et al., Defendants’ Verified Amended Counterclaims, Answer, and Affirmative Defenses to Plaintiff’s Verified Complaint, C.A. No. 2022-0613-KSJM, at p. 87 (Aug. 4, 2022).
12. SnowPhippsGroup,LLCv.KCAKEAc- quisition, Inc., 2021 WL 1714202 (Del. Ch. April 30, 2021).
13. IBP, Inc. v. Tyson Foods, Inc., 789 A.2d 14 (Del. Ch. 2001).
14. The IBP-Tyson transaction was a mixed cash and stock deal. Id. Moreover, none of the cases ordering specific performance was ever affirmed by the Delaware Supreme Court.
15. Snow Phipps Group, 2021 WL 1714202 at *52-56.
16. The humor of which was not appreci-
ated by Chancellor McCormick. See Twitter
v. Musk, et al., 2022 WL 4004148 (Del. Ch. Sept. 2, 2022).
17. The Twitter Lawsuit Could Be Very Bad for Elon Musk, NEW YORK MAGAZINE, July 12, 2022 (available at https://nymag.com/ intelligencer/2022/07/the-twitter-lawsuit- could-be-very-bad-for-elon-musk.html).
18. Kate Conger & Lauren Hirsch, The
Board Chair Squaring Up to Elon Musk in
the Feud Over Twitter, N.Y. Times, Oct. 4, 2022 (available at https://www.nytimes. com/2022/10/04/technology/twitter-board- elon-musk.html).
19. As far as we can discern, other than a representative of Silver Lake (a major Twitter investor) and Twitter co-founder and former CEO Jack Dorsey, none of Twitter’s direc-
tors had significant stakes in the company.
See Twitter Schedule 14A, filed Apr. 12,
2022, https://www.sec.gov/Archives/edgar/ data/1418091/000114036122014049/ ny20001921x3_def 14a.htm
14 DELAWARE LAWYER FALL 2022