Musk Twitter Takeover Battle Heading To Court

The concluding act of the drama involving Elon Musk and his attempts to abandon his bid for Twitter (TWTR) is getting underway as the chief executive of Tesla (TSLA) awaits his day in court amid rumblings of a possible settlement in the case.

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Twitter stock jumped Friday on reports a company board director was contacted by Hollywood super-agent Ari Emanuel in an effort to end the $44 billion acquisition dispute with Musk. Emanuel reportedly contacted Twitter board director Egon Durban within the past few weeks to suggest the two sides find a solution to the dispute ahead of upcoming court proceedings. Twitter stock climbed 2.6% to close at 43.84 on the stock market today.

Durban is co-chief executive of private equity firm Silver Lake. He notified the Twitter board about the conversation, reports said. It was not clear if Emanuel was operating at the behest of Musk.

The machinations come as Musk prepares himself for a deposition in the coming week. Then he and Twitter will gird themselves for an Oct. 17 trial, which observers see lasting no more than five days. But at least one analyst wonders whether the case ever sees a courtroom at all.

“We continue to believe there is a possibility that both parties look to attempt negotiations before stepping into court,” Wedbush analyst Dan Ives told Investor’s Business Daily via email. “Musk is in weak legal standing heading into Delaware and it’s still likely he ends up owning Twitter if he steps into court without settling beforehand.”

Musk is due to be deposed Oct. 6 and 7. The deposition originally was scheduled a week earlier, but he failed to show and no reason was given, according to Reuters. If it gets underway, the trial would take place in the Delaware Court of Chancery.

Both Twitter and Musk declined to comment.

Musk-Twitter Saga Could Cost Billions

The saga began more than five months ago when Musk, who also heads SpaceX, revealed in mid-April his plan to acquire Twitter for $54.20 a share. In all, the deal was worth a total $44 billion.

But then Musk got cold feet and tried to pull out of the deal, citing faulty user numbers from Twitter. Now, the outcome could cost the Tesla chief billions of dollars if Chancery Judge Kathaleen McCormick rules Musk pulled out of the deal without just cause.

A number of potential outcomes await Musk and Twitter.

Ives outlined four possible scenarios with varying prospects for coming to pass. One scenario he said had a high likelihood of occurring is that the court will rule that Musk has to buy Twitter at the $44 billion agreed-upon price.

Forcing the world’s richest man to go through with his original offer would not set a precedent. In 2001, Tyson Foods (TSN) was forced to acquire meatpacker IBP after initially attempting to back out of the $3.2 billion deal.

Musk Might Have To Pay Twitter Billions

One more prospect with high chances of success is Musk walks away but pays significant damages, Ives says. That ranges from $5 billion to $10 billion, based on past legal cases, he adds.

That remains possible if Twitter convinces the judge it incurred serious harm. Twitter was in line for a $1 billion breakup fee as part of the original agreement but that may multiply.

“We do not believe the Twitter board will even sniff a settlement (for) less than $5 billion,” said Ives.

Musk’s April 14 formal offer came nearly two weeks after he disclosed a 9% stake in the company on April 1.

Initially, Musk brushed off company management and its board of directors and appealed directly to shareholders. But the board agreed to the deal on April 25.

Then Musk announced plans to pull out, and was accused of repeatedly disparaging Twitter to put downward pressure on its stock price. That led to legal action and the upcoming trial.

Who Pays The Breakup Fee?

Ives sees a low likelihood that Musk walks away paying just the original $1 billion breakup fee.

Another option is that Musk wins and pays no breakup fee. This also is unlikely, Ives says.

There is a remote possibility that if Musk can prove Twitter deceived him, the company might have to fork over a breakup fee.

Musk has claimed Twitter failed to provide requested information to settle questions about fake user numbers. When he pulled out of the deal, he said Twitter lowballed the number of spam accounts.

The two sides are conducting dozens of depositions and reviewing thousands of documents and communications in preparation for the trial. Twitter attorneys are expected to try and show that Musk abandoned the deal due to falling financial markets.

Twitter Stock Rattled

Ever since Musk disclosed his stake, Twitter stock is down 15% to 43.40. That’s well below Musk’s offer of 54.20. It was down 30% at one point.

For that same period, Tesla stock is down about 26%.

Tesla stock has suffered because Musk sold a large chunk of shares to help finance the deal. Analysts also were concerned about the distraction for Musk and how it could undermine Tesla.

Ives wrote in a recent note to clients, “We also believe a likely scenario is Musk still having to buy Twitter, but at a lower renegotiated price in the $50 range and taking a brutal court battle off the table before it begins.”

“Musk is likely in a weak legal position to defend his case to abandon this Twitter deal in our opinion,” he said.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.

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