fair.png
Tuesday August 9th, 2022 3:37PM

EXPLAINER: Twitter, Musk and the Delaware Chancery Court

By The Associated Press
Related Articles
  Contact Editor

DOVER, Del. (AP) — Twitter Inc.’s lawsuit to force billionaire Elon Musk to make good on his promise to buy the social media giant will be resolved in a small but powerful Delaware court that specializes in high-stakes business disputes.

Twitter has sued Musk in Delaware’s Court of Chancery in an effort to force him to complete a $44 billion takeover deal reached in April.

WHAT IS THE LAWSUIT ABOUT?

Musk, the world’s richest man, pledged to pay $54.20 a share for Twitter but now wants to back out of the agreement. He claims the company has failed to provide adequate information about the number of fake, or “spam bot,” Twitter accounts, and that it has breached its obligations under the deal by firing top managers and laying off a significant number of employees.

Twitter argues that Musk, CEO of electric car maker and solar energy company Tesla Inc., has operated in bad faith and is deliberately trying to tank the deal because market conditions have deteriorated and the acquisition no longer serves his interests. According to the lawsuit, the value of Musk’s shares in Tesla, which he was to draw upon to help finance the acquisition, has declined by more than $100 billion since November.

Either Musk or Twitter would be entitled to a $1 billion breakup fee if the other party is found responsible for the agreement failing. Twitter wants more, however, and is seeking a court order directing Musk to follow through with the deal.

WHEN DOES THE TRIAL START?

Twitter lawyers are asking the court to expedite the case. They have proposed a four-day trial starting Sept. 19.

WHAT IS THE COURT OF CHANCERY?

The Court of Chancery, established in 1792, traces its roots to the High Court of Chancery of Great Britain, which in turn evolved from an earlier institution in feudal England known as the King’s Chapel. The court, overseen by the lord chancellor as “keeper of the king’s conscience,” served as an alternative to the more rigid and inefficient common law courts. It held the power to offer remedies such as injunctions, estate administration, and, notably, “specific performance,” which can force a party to complete a transaction against its will.

The 230-year-old Court of Chancery typically handles civil cases where a plaintiff is seeking non-monetary damages. Such cases can include disputes over property boundaries and land purchases, guardianship appointments, and estates, trusts and wills.

More often than not, they involve business disputes pitting companies against disgruntled shareholders, or parties to failed mergers and acquisitions against one another.

HOW DOES THE COURT OF CHANCERY WORK TODAY?

The seven judges on the Delaware Court of Chancery exercise these powers today, making it a key venue for high-stakes business disputes. Delaware features a well-established and carefully nurtured body of corporate case law dating to 1899 and is the corporate home to more than 1 million business entities, including more than 60% of Fortune 500 companies. Many merger agreements, in fact, specify that any disputes will be heard by a Delaware Chancery Court judge.

“It’s not that they are necessarily more brilliant than judges in other states, they just have a lot of exposure to this stuff and are pretty sophisticated about it,” said Lawrence Hamermesh, executive director of the Institute for Law & Economics at the University of Pennsylvania.

HAS MUSK BEEN IN THIS COURT BEFORE?

Musk is no stranger to the Court of Chancery. Earlier this year, he emerged victorious in a shareholder lawsuit accusing him of a conflict of interest in Tesla’s 2016 acquisition of SolarCity, a struggling solar panel company in which Musk was the largest shareholder and also served as board chairman.

Hamermesh, a former professor of corporate and business law at Widener University Delaware Law School, noted that the specific performance sought by Twitter is a “pretty rare” remedy, and that it’s uncertain whether the court will force Musk to consummate the deal.

“There are a lot of instances where a judge could say, ‘Buyer, you’re in breach,’ but the remedy is a termination fee,” he said. “Given what I have seen so far, my gut instinct is that Twitter’s got the upper hand legally. Whether they’ll get the full specific performance or just the breakup fee is a little harder to say.”

HOW HAS THE COURT ACTED IN THE PAST?

If the court does force Musk to close the deal, it would not be without precedent.

In 2001, poultry giant Tyson Foods Inc. was ordered to complete its $3.2 billion acquisition of meatpacker IBP Inc. when a judge granted IBP’s claim for specific performance.

More recently, a Chancery judge last year ordered private equity firm Kohlberg & Co. to close its $550 million purchase of DecoPac Holdings Inc., which sells cake decorations and technology to supermarkets for in-store bakeries. Vice Chancellor Kathaleen St. Jude McCormick said Kohlberg had failed to demonstrate that a decline in DecoPac sales amid the coronavirus pandemic constituted a “material adverse effect” allowing the buyers to walk away. McCormick, who was sworn in as Chancellor, or head judge of the court, just one week after her ruling, described it as “a victory for deal certainty.”

On the flip side, Vice Chancellor J. Travis Laster declared in 2018 that a pharmaceutical company targeted for a merger had experienced such a decline in its financial condition that it amounted to a material adverse effect, allowing the proposed buyer to terminate the deal. The ruling marked the first time the court found the existence of a material adverse effect, or MAE, in a business transaction. It allowed German health care company Fresenius Kabi AG to walk away from its planned $4.3 billion acquisition of U.S. generic drugmaker Akorn Inc.

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Corporate News, AP Business - Industries, AP Business - Agriculture, AP Business - Poultry & Egg, AP Technology News
© Copyright 2022 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
EXPLAINER: Twitter, Musk and the Delaware Chancery Court
Twitter Inc.’s lawsuit to force billionaire Elon Musk to make good on his promise to buy the social media giant will be resolved in a small but powerful Delaware court that specializes in high-stakes business disputes
6:08PM ( 4 minutes ago )
Suit seeks to ban Ryan Kelley from Mich. ballot for Jan. 6
A lawsuit has been filed in Michigan to try to disqualify a Republican candidate from the governor's race
6:04PM ( 7 minutes ago )
A rookie rises and Tiger crashes in slow-moving British Open
The Old Course at St. Andrews was fast as ever
5:57PM ( 15 minutes ago )
Associated Press (AP)
Fed ethics inquiry clears Powell and Clarida trades
The Federal Reserve’s inspector general concluded that financial trades made several years ago by Chair Jerome Powell and Richard Clarida, then the vice chair, did not violate any laws or ethics rules
5:09PM ( 1 hour ago )
Italian Premier Draghi's resignation is rebuffed -- for now
Italy's president has rebuffed Premier Mario Draghi's offer to resign after a key ally refused to back the government in a Senate vote
5:01PM ( 1 hour ago )
Stocks fall as JPMorgan warning helps send banks lower
Stocks closed lower on Wall Street Thursday and banks were among the biggest weights on the market following weak earnings and a warning from JPMorgan Chase
4:55PM ( 1 hour ago )
AP Business
US stocks fall as JPMorgan releases weak earnings, warning
Stocks fell broadly in afternoon trading on Wall Street Thursday and banks were among the biggest weights on the market following weak earnings and a warning from JPMorgan Chase
3:00PM ( 3 hours ago )
Agent Casey Close sues radio host over Freeman allegation
Freddy Freeman’s former agent and his company have sued a radio host for libel, alleging Doug Gottlieb falsely claimed Casey Close never informed the first baseman of the Atlanta Braves’ last contract offer
2:58PM ( 3 hours ago )
Officials suggest pipeline company hid problems after spill
U.S. prosecutors suspect a Wyoming company of potentially concealing problems with a pipeline that broke in 2015 and spilled tens of thousands of gallons of crude into the Yellowstone River
1:58PM ( 4 hours ago )
AP Business - Corporate News
The Latest: US oil industry welcomes Biden's Saudi visit
The U_S_ oil and gas industry is welcoming President Joe Biden’s visit to Saudi Arabia but says he should be meeting with producers at home “to bring real and lasting solutions instead of looking to governments overseas.”
3:13PM ( 2 hours ago )
With COVID surging, Los Angeles may soon require masks
New omicron variants are again driving hospital admissions and deaths higher in recent weeks, causing states and cities to rethink their responses to COVID-19
2:32PM ( 3 hours ago )
Fed board member opens door to 1-point hike if demand rises
Christopher Waller, a member of the Federal Reserve’s Board of Governors, said Thursday that he would be open to supporting a huge 1 percentage point increase in the Fed’s key short-term interest rate later this month if upcoming economic data points to robust consumer spending
11:40AM ( 6 hours ago )
AP Business - Industries
Drought: Italy warns a third of farm production at risk
Italy’s agriculture minister is warning that a third of Italy’s agricultural production is at risk because of drought and poor water infrastructure
12:49PM ( 1 day ago )
US agency studies rare whale habitat expansion request
The U.S. government has agreed to a request from environmental groups to study increasing critical habitat designations in Alaska waters for one of the rarest species in the world
8:39PM ( 2 days ago )
Anger simmers for Dutch farmers who oppose pollution cuts
Dutch farmers are embroiled in a summer of discontent that shows no sign of abating
2:32AM ( 4 days ago )
AP Business - Agriculture
Bird flu arrives in Southwest after millions of birds die
Arizona officials have confirmed the first cases in the Southwest of a bird flu that has led to the deaths of 37 million birds on commercial farms in the central and eastern U.S. Arizona Game and Fish officials announced this week that the disease was present in three wild cormorants that had been found dead in a park in the Phoenix suburb of Scottsdale
8:41PM ( 1 month ago )
Report: Trump officials, meat companies knew workers at risk
A new congressional report says that in the first year of the coronavirus pandemic, the meat processing industry worked closely with political appointees in the Trump administration to stave off health restrictions and keep slaughterhouses open even as COVID-19 spread rapidly among workers
3:16PM ( 2 months ago )
Report criticizes meat industry, USDA response to pandemic
A new Congressional report says that at the height of the pandemic, the meat processing industry worked closely with political appointees in the Trump administration to stave off health restrictions and keep slaughterhouses open even as COVID-19 spread rapidly among workers
10:02AM ( 2 months ago )
AP Business - Poultry & Egg
Log4j software flaw 'endemic,' new cyber safety panel says
A new cybersecurity panel created by President Joe Biden says a computer vulnerability discovered last year in a ubiquitous piece of software is an “endemic” problem that will pose security risks for potentially a decade or more
11:25AM ( 6 hours ago )
Is Twitter down? Service appears to return after outage
Twitter appears to be returning for some users after experiencing an hourlong outage that affected both its app and website on Thursday
9:17AM ( 8 hours ago )
Amazon offers concessions to head off EU antitrust case
Amazon has promised to treat third-party merchants on its website fairly as it seeks to resolve two European Union antitrust investigations
6:16AM ( 11 hours ago )
AP Technology News
Suit seeks to ban Ryan Kelley from Mich. ballot for Jan. 6
A lawsuit has been filed in Michigan to try to disqualify a Republican candidate from the governor's race
6:04PM ( 8 minutes ago )
A rookie rises and Tiger crashes in slow-moving British Open
The Old Course at St. Andrews was fast as ever
5:57PM ( 15 minutes ago )
NHL free agency: Devils sign Palat, Capitals add Strome
The New Jersey Devils have agreed to terms with left winger Ondrej Palat on a $30 million, five-year contract
5:55PM ( 17 minutes ago )
Ivana Trump, first wife of former president, dies at 73
Ivana Trump, the first wife of former President Donald Trump and mother to his oldest children, has died in New York City
5:52PM ( 20 minutes ago )
Royals patching up roster for Toronto, image among fans
The Kansas City Royals are busy patching up a roster decimated by players barred from traveling to Toronto because of their COVID-19 vaccination status while trying to heal their damaged image among fans
5:50PM ( 22 minutes ago )