5 Endings of Musk-Twitter Drama, Which Do You Prefer？

• Musk announced the termination of the merger agreement due to $Twitter(TWTR)$ 's breach of contract.
• Twitter intends to take Musk to court to force him to buy the company for $44 billion.

The takeover drama between Musk and Twitter is turning into an unpredictable end. 

This article combines various views and lists 5 most likely outcomes of this historical bid: the first 3 scenarios shows the possibilities of the court decisions, and the last 2 scenarios are the settlement outlooks.$Tesla Motors(TSLA)$

1. Musk wins the lawsuit and does not pay the breakup fee

Musk claimed that $Twitter(TWTR)$ appears to have made false and misleading representations about bot accounts.

Elon Musk said that Twitter's failure to properly provide specific information about the number of bots, which led to "a material adverse effect" (MAE) and that a judge would have to decide whether MAE had occurred and whether it was reasonable for Musk to abandon the acquisition.

One historical MAE case in the merger

So far, Delaware courts have found only one clear MAE case -- Fresenius SE's $4.3 billion buyout bid in 2018 for rival drugmaker Akorn in 2018.

photo from cnbc

The presiding judge at the time upheld Fresenius' decision to abandon the deal. In this case, $Akorn(AKRX)$ executives had concealed a series of issues that cast doubt on the validity of data on certain drug approvals, as well as the profitability of the company's business.

As Bloomberg’s Matt Levine explained,

⭐Musk may also be able to get out of the deal if a judge rules Twitter didn’t provide him with enough information as it promised it would. That would make the spam account issue moot.

2. Twitter wins and Musk is forced to complete the acquisition

If a judge finds that the bot data does not cause MAE, Twitter can ask the judge to force Musk to complete the acquisition.

One example of the court forcing the buyer to continue the takeover:

photo from https://www.sec.gov/

In 2001, a Delaware court ruled that $Tyson(TSN)$ had to acquire IBP, then the largest beef distributor in the US, for the previously agreed price of $30 per share.

Tyson Foods tried to abandon the acquisition - just as Musk abandoned the purchase of Twitter- after the two parties signed the merger agreement.

The judge ruled that $Tyson(TSN)$ had no right to abandon the deal because the buyer reneged. So $Tyson(TSN)$ was forced to complete the acquisition at the originally agreed price. IBP, which remains a Tyson subsidiary, was valued at $3.2 billion at the time.

In the Musk & Twitter case:

⭐For Twitter investors, the completion of the acquisition would be the most favorable ending, but would have resulted in an unpredictable future for Twitter and its employees.

However, there is one scenario that Musk refuses to perform the court order. There is no clear article that can force Musk to perform the acquisition.

3. Twitter wins in court, Musk pays damage fees

Twitter said that the company has submitted a large amount of user data. Its executives stressed that the platform manually reviews thousands of accounts each quarter and generate the number of 5% fake accounts.

Morgan Ricks, a law professor at Vanderbilt University, said

the judge may choose to make Musk pay damages and not force a takeover. (especially given that Musk has flouted government rules and regulatory regulations in the past.)

From the judge's perspective, if Musk really doesn't want to buy Twitter, the ownership handover becomes very difficult, resulting in serious collateral damage.

⭐Paying damages would be a relatively good outcome for Twitter. Twitter lost $1.1 billion in 2020 and $200 million in 2021, and it would certainly be beneficial for Twitter to get $1 billion or more through this lawsuit.

4. Settlement - Musk and Twitter both agree to continue with a lower price

Musk could also buy Twitter at a lower price by claming there is a significant MAE.

Past example of a lower purchase price after negotiation

For example, when $LVMH-Moet Hennessy Louis Vuitton(LVMUY)$ acquired US jeweler Tiffany & Co. on the grounds that the pandemic caused financial losses. LVMH eventually closed the deal with a lower purchase price.

photo from jewellermagazine

Musk's announcement to abandon the purchase may also be a negotiating strategy to get Twitter to lower the purchase price.

Since Musk agreed to buy Twitter on April 25, valuations of media and technology stocks have plummeted. Another social media company, $Snap Inc(SNAP)$ , has seen its valuation shrink by half during that period.

⭐Musk and Twitter may agree on a lower price to reflect the market's valuation. But it's also likely to come with a very high breakup fee on their new contract to ensure Musk won't do it again.

5. Settlement - Musk pays breakup fee

No lawsuit is likely to be a mutually desirable outcome.

However, Twitter's demand is clear: Musk must buy Twitter for $54.20 per share. Or Twitter's stock price will continue to fall. On Friday, Twitter has already fallen sharply as investors have doubts about the probability and timing of a deal happening.

But given Twitter's reaction in the dramatic process-- only a few days from the poison pill plan to accepting the takeover -- it's also likely that Twitter will backtrack and accept a hefty breakup fee.

If the two parties settle either pre-litigation or mid-litigation by a court, in which case Musk could pay a $1 billion breakup fee, plus billions in settlement fees.

⭐If the settlement fee is high enough, the Twitter board could tell investors that they makes the right decision in choosing to settle instead of litigation.

Bottom Line

Twitter has hired Wachtell, Lipton, Rosen & Katz, a prominent law firm in M&A.

Meanwhile, Musk has also hired Quinn Emanuel Urquhart & Sullivan LLP, which successfully won defamation charges on his behalf in 2019 and is representing him in ongoing shareholder litigation.

As the case itself is complex and both sides are extremely powerful, the court's decision may be difficult and crucial. Plus, how to handle and enforce the order will undoubtedly be a big problem.

Which ending do you think is most likely to happen?

Share your opinions in the comment section~