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| Photo Credit: AP. |
(AP) - Trading in shares of Twitter was halted after the stock spiked on reports that Elon Musk would proceed with his $44 billion deal to buy the company after months of legal battles.
For a second
time, Musk offered to buy the San Francisco company at $54.20. Shares jumped
nearly 13% to $47.95 before trading stopped.
Bloomberg
News reported Tuesday that Musk made the proposal in a letter to Twitter,
according to people familiar with the case who were not identified.
Musk has
been trying to back out of the deal for several months after signing on to buy
the social media platform in April. Shareholders have already approved the
sale. Musk claimed that Twitter under-counted the number of fake accounts on
its platform, and Twitter sued when Musk announced the deal was off.
Neither
Twitter nor lawyers for Musk responded to messages seeking comment on Tuesday.
The trial
seeking to compel Musk to buy Twitter is set to start in Delaware Chancery
Court on Oct. 17.
Musk’s
argument for walking away from the deal — has largely rested on the allegation
that Twitter misrepresented how it measures the magnitude of “spam bot”
accounts that are useless to advertisers. But most legal experts believed he
faced an uphill battle in convincing Chancellor Kathaleen St. Jude McCormick,
the court’s head judge, that something changed since the April merger agreement
that justifies terminating the deal.
Legal
experts generally have said that Twitter had the upper hand in the lawsuit,
which Twitter filed in July. Twitter is seeking “specific performance” of the
contract with Musk, which means he would have to go through with the purchase
at the original price. The contract Musk signed also has a $1 billion breakup
fee.
“This is a clear
sign that Musk recognized heading into Delaware Court that the chances of
winning vs. Twitter board was highly unlikely,” Wedbush analyst Dan Ives wrote
in a note to investors. “Being forced to do the deal after a long and ugly
court battle in Delaware was not an ideal scenario, and instead accepting this
path and moving forward with the deal will save a massive legal headache.”
Among the
remedies that would favor Twitter is a court order to go through with the deal.
The Chancery Court last year forced private equity firm Kohlberg & Co. to
go through with its $550 million buyout of DecoPac, a company based in
Minnesota that calls itself the world’s largest supplier of cake decorating
supplies to professional decorators and bakeries. The case was emblematic of
the court’s common — though not uniform — resolution of enforcing contractual
obligations on buyers.
Other
options include Musk being forced to pay the breakup fee each side agreed to if
deemed responsible for the deal falling through. Or he might have to pay off a
larger amount without actually buying the company for $44 billion.
Legal
experts have said that Delaware courts have been picky about interpreting what
counts as a valid reason for backing off of a deal. The gap between what Musk
knew about Twitter when he made the offer in April and the state of the company
today had to be huge, and there’s little evidence of that, one lawyer said.