A Delaware judge halted Elon Musk’s $44 billion purchase of Twitter, giving the parties more time to complete the transaction.
According to an order issued Thursday, Delaware Chancery Judge Kathaleen St. J. McCormick stated that if the transaction is not completed by 5 p.m. on Oct. 28, she will set new trial dates in November.
The decision gives Musk a partial victory, as he had earlier in the day asked the judge to halt Twitter’s lawsuit against him ahead of an Oct. 17 trial date. However, it also gives Musk a deadline by which he must fulfil his April agreement to pay $54.20 per share – an obligation he previously attempted to avoid. Twitter shares rose as much as 3.5% in late trading following the judge’s ruling, indicating optimism that the order will provide Twitter with some of the certainty it sought.
The parties’ feud heated up again on Thursday, with both sides trading barbs in court filings. Musk requested a break in the hearing, stating that the social media company “will not take yes for an answer” after proposing the buyout in an Oct. 3 letter. His attorneys planned to close on October 28. Twitter had objected to the request, claiming that Musk “can and should” complete the transaction next week.
The two sides’ talks had stalled after Musk stated that his offer was now conditional on receiving $13 billion in debt financing. The original agreement did not include such a provision. Musk stated that Twitter is opposing a stay of proceedings based on the “theoretical possibility of a future failure to obtain the debt financing.”
Following the judge’s decision, Twitter General Counsel Sean Edgett sent an update to employees, stating that the company will not be going to court on Oct. 17 and will work to close the deal by Oct. 28, as the judge has ordered.
“Our intention remains the same: to complete the acquisition at the price and terms specified in the original merger agreement,” Edgett wrote in a memo obtained by Bloomberg. “Thank you to everyone who worked so hard to navigate these twists and turns.”
Musk began tweeting about his Twitter plans within hours of McCormick’s order. In response to another user’s question, he wrote, “There will be very rapid product evolution.” “Software engineering, server operations, and design will reign supreme,” he wrote in another post.
There is no risk.
Musk’s lawyers argued earlier Thursday in their filing that a brief pause would not harm Twitter. “If a closing does not occur, the litigation can be quickly resumed based on the then-existing facts and any issues that remain at the time.” However, proceeding with the scheduled Oct. 17 trial and the subsequent appeals would have caused the deal to take “months” to complete, according to Musk’s lawyers.
Twitter said it is sceptical of Musk’s promises, and that a banker involved in the debt financing testified earlier Thursday that Musk had yet to send them a borrowing notice, and had otherwise not communicated his intention to close the deal. According to the banker, “the main task required to close the deal — memorialising 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 their intention to close after all,” Twitter wrote in its filing. “‘Trust us,’ they say, ‘we mean it this time,’ and so they ask to be excused from a merit-based reckoning.”
Musk’s proposed stay “invites further mischief and delay,” according to the platform. “Twitter is entitled to a day in court until Defendants commit to closing as required.”
The two parties had been preparing for a week-long court battle to determine whether the billionaire had legitimate grounds to cancel the buyout due to alleged fake user accounts. McCormick ruled against Tesla Inc. CEO on a half-dozen pre-trial issues, which may have foreshadowed difficulties in presenting his case in court.
Obligations to a bank
According to an April filing, seven banks, led by Morgan Stanley, fully underwrote the debt portion of the financing. Banks initially planned to sell the majority 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.
After signing the contract, banks have few, if any, options for getting out of providing such debt commitments. And most banks would not want to, even if it meant avoiding a loss, because backing out would reflect poorly on their investment banking business and could jeopardise their future ability to win new deals with companies and private equity firms.
A Morgan Stanley representative declined to comment on the Musk transaction.
According to Bloomberg, Musk has been negotiating with Twitter to reserve his rights to file a fraud suit over his claims that the platform’s executives misled him and other investors about the number of spam and robot accounts among its more than 230 million users.
According to Alex Spiro, Musk’s attorney, Twitter offered to take “billions” off its sale price in exchange for “self-serving conditions” that Musk refused. Twitter has not responded to a request for comment on Spiro’s statement or the terms of the proposed deal.