EXPLAINER: Twitter, Musk and the Delaware Chancery Court

DOVER, Del. — Twitter Inc.’s lawsuit to force billionaire Elon Musk to make fantastic on his assure to invest in the social media large will be resolved in a modest but effective Delaware court docket that specializes in higher-stakes business enterprise disputes.

Twitter has sued Musk in Delaware’s Courtroom of Chancery in an effort and hard work to drive him to total a $44 billion takeover offer arrived at in April.


Musk, the world’s richest man, pledged to pay out $54.20 a share for Twitter but now wishes to back again out of the settlement. He claims the business has failed to give suitable info about the variety of pretend, or “spam bot,” Twitter accounts, and that it has breached its obligations beneath the offer by firing major managers and laying off a substantial range of employees.

Twitter argues that Musk, CEO of electric vehicle maker and photo voltaic energy business Tesla Inc., has operated in bad faith and is intentionally hoping to tank the deal due to the fact market problems have deteriorated and the acquisition no longer serves his pursuits. In accordance to the lawsuit, the price of Musk’s shares in Tesla, which he was to draw on to assistance finance the acquisition, has declined by more than $100 billion due to the fact November.

Either Musk or Twitter would be entitled to a $1 billion separation charge if the other social gathering is uncovered responsible for the settlement failing. Twitter wishes much more, nonetheless, and is looking for a court docket get directing Musk to comply with by way of with the offer.

WHEN DOES THE Trial Start?

Twitter legal professionals are asking the courtroom to expedite the case. They have proposed a 4-day trial starting up Sept. 19.


The Courtroom of Chancery, founded in 1792, traces its roots to the High Court of Chancery of Good Britain, which in convert advanced from an earlier institution in feudal England identified as the King’s Chapel. The court docket, overseen by the lord chancellor as “keeper of the king’s conscience,” served as an option to the far more rigid and inefficient widespread regulation courts. It held the electricity to offer remedies such as injunctions, estate administration, and, notably, “specific effectiveness,” which can pressure a celebration to total a transaction versus its will.

The 230-yr-aged Courtroom of Chancery commonly handles civil scenarios the place a plaintiff is in search of non-monetary damages. These conditions can involve disputes more than assets boundaries and land buys, guardianship appointments, and estates, trusts and wills.

A lot more usually than not, they include company disputes pitting providers in opposition to disgruntled shareholders, or get-togethers to failed mergers and acquisitions versus a person an additional.

HOW DOES THE Court docket OF CHANCERY Work Today?

The 7 judges on the Delaware Courtroom of Chancery exercising these powers nowadays, building it a crucial location for higher-stakes business enterprise disputes. Delaware attributes a very well-founded and meticulously nurtured body of company scenario legislation dating to 1899 and is the company home to additional than 1 million organization entities, such as extra than 60% of Fortune 500 corporations. Numerous merger agreements, in fact, specify that any disputes will be read by a Delaware Chancery Court decide.

“It’s not that they are automatically far more good than judges in other states, they just have a whole lot of exposure to this stuff and are quite refined about it,” explained Lawrence Hamermesh, government director of the Institute for Law & Economics at the College of Pennsylvania.

HAS MUSK BEEN IN THIS Court docket Prior to?

Musk is no stranger to the Court docket of Chancery. Previously this 12 months, he emerged victorious in a shareholder lawsuit accusing him of a conflict of interest in Tesla’s 2016 acquisition of SolarCity, a having difficulties photo voltaic panel enterprise in which Musk was the greatest shareholder and also served as board chairman.

Hamermesh, a previous professor of company and organization law at Widener University Delaware Law University, famous that the certain general performance sought by Twitter is a “pretty rare” solution, and that it’s uncertain regardless of whether the court will pressure Musk to consummate the offer.

“There are a ton of cases wherever a choose could say, ‘Buyer, you are in breach,’ but the solution is a termination payment,” he mentioned. “Given what I have noticed so considerably, my intestine instinct is that Twitter’s bought the upper hand legally. No matter if they’ll get the complete precise performance or just the separation payment is a tiny more difficult to say.”


If the court does pressure Musk to close the offer, it would not be with no precedent.

In 2001, poultry big Tyson Foodstuff Inc. was purchased to finish its $3.2 billion acquisition of meatpacker IBP Inc. when a choose granted IBP’s claim for certain functionality.

Far more recently, a Chancery decide last 12 months purchased personal fairness company Kohlberg & Co. to shut its $550 million acquire of DecoPac Holdings Inc., which sells cake decorations and know-how to supermarkets for in-keep bakeries. Vice Chancellor Kathaleen St. Jude McCormick explained Kohlberg experienced unsuccessful to display that a decline in DecoPac product sales amid the coronavirus pandemic constituted a “material adverse effect” permitting the potential buyers to walk absent. McCormick, who was sworn in as Chancellor, or head decide of the courtroom, just a single 7 days following her ruling, explained it as “a victory for deal certainty.”

On the flip side, Vice Chancellor J. Travis Laster declared in 2018 that a pharmaceutical firm specific for a merger had expert this kind of a drop in its economical issue that it amounted to a content adverse outcome, allowing the proposed consumer to terminate the deal. The ruling marked the initial time the courtroom observed the existence of a content adverse influence, or MAE, in a enterprise transaction. It authorized German overall health care business Fresenius Kabi AG to stroll away from its prepared $4.3 billion acquisition of U.S. generic drugmaker Akorn Inc.

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