Twitter trial against Musk is halted to allow deal to close
A judge halted the court case against Elon Musk over his $44-billion purchase of Twitter Inc., giving the parties until 5 p.m. Oct. 28 to complete the deal.
Delaware Chancery Judge Kathaleen St. J. McCormick said that if the transaction isn’t done by that time, she will set trial dates in November, according to an order issued Thursday.
The ruling is a win for Musk, who earlier in the day asked the judge to pause Twitter’s lawsuit against him. He said the social media company “will not take yes for an answer” after he revived his bid to buy it. The billionaire earlier this week proposed consummating the $54.20-per-share deal provided the court “enter an immediate stay of the action” and “adjourn the trial and all other proceedings,” according to a Monday letter.
In Musk’s latest filing, the billionaire’s lawyers said they were aiming for an Oct. 28 closing date. McCormick’s order holds him to that date, giving Twitter some of the certainty it was seeking.
Why is the Tesla billionaire suddenly willing to honor his deal to buy Twitter? Is there still a way he could wriggle off the hook? Will employees stick around to find out?
Shares in the social media company climbed 26 cents in after-hours trading. Twitter had objected to the request to pause, saying Musk “can and should” close the deal next week.
Talks between the two sides to finalize the sale have been stuck after Musk said that his offer is now contingent on receiving $13 billion in debt financing. The original deal, which he proposed in April and then reneged on, didn’t contain such a contingency. Musk said Twitter is opposed to a halt in court proceedings based on the “theoretical possibility of a future failure to obtain the debt financing.”
No harm
Musk’s lawyers said that a short pause would not harm Twitter. “In the event a closing does not occur, the litigation can promptly resume based on the then existing facts and whatever issues remain at the time.” But going ahead with the scheduled Oct. 17 trial, and the appeals that would follow, would cause the deal to take “months” to complete, Musk’s lawyers said.
Twitter said it’s dubious of Musk’s promises and said that a banker involved in the debt financing testified earlier Thursday that Musk had yet to send the bank a borrowing notice, and had otherwise not communicated his intention to close the deal. The banker also said that “the main task necessary to close the deal — memorializing the debt financing — could have happened in July but didn’t because Mr. Musk purported to terminate the deal.”
“Now, on the eve of trial, defendants declare they intend to close after all,” Twitter said in its filing. “‘Trust us,’ they say, ‘we mean it this time,’ and so they ask to be relieved from a reckoning on the merits.”
Musk’s proposed stay “is an invitation to further mischief and delay,” the platform said. “Until defendants commit to close as required, Twitter is entitled to its day in court.”
The two parties had been gearing up for the weeklong courtroom battle, which would have determined whether the billionaire had legitimate grounds to torpedo the buyout because of alleged fake user accounts. McCormick ruled against the Tesla Inc. chief executive on about half a dozen pretrial issues that could have foreshadowed difficulties in making his case in court.
Bank obligations
Seven banks, led by Morgan Stanley, fully underwrote the debt portion of the financing, according to an April filing. As is usual in this type of contract, banks originally planned to sell most of that debt to institutional money managers before the Twitter deal closed, but they have always been on the hook for providing the funding if anything went wrong.
There are very few, if any, ways for banks to get out of providing such debt commitments after signing the contract. And most banks wouldn’t want to, even if it meant preventing a loss, because backing out would reflect poorly on their investment banking business and could harm their ability to win new deals with companies and private equity firms.
A representative for Morgan Stanley declined to comment about the Musk deal.
Bloomberg reported earlier that, as part of the talks with Twitter, Musk has also been seeking to reserve his rights to file a fraud suit over his claims the platform’s executives misled him and other investors about the number of spam and robot accounts among its more than 230 million users.
Alex Spiro, an attorney for Musk, said in a statement Twitter had offered to take “billions” off its sale price in exchange for “self-serving conditions” that Musk refused. Twitter hasn’t replied to a request for comment on Spiro’s statement or the deal conditions it’s seeking.
— Bloomberg writers Kurt Wagner, Michelle F. Davis, Ed Hammond, Katie Roof and Paula Seligson contributed to this report.
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