The legal fight between Twitter and Elon Musk over his failure to complete his agreed purchase of the company has been postponed after a judge granted the Tesla chief executive’s request for a delay.
The social media platform and Musk, who this week U-turned on his decision to walk away from the deal, have until 28 October to close a transaction or else the case will be back on in Delaware in November.
Here we shed some light on how the dispute got to this point and what could happen next.
What is the background to the row?
A quick recap for those who have not been following this twisty saga closely: Musk signed a formal agreement to buy Twitter for $44bn (£39bn) in April. In July, he announced he was terminating the agreement and walking away. Twitter responded by lodging a lawsuit in Delaware, where the company is incorporated, demanding that the world’s richest man close the deal under the terms agreed.
Musk countersued, accusing Twitter of running a “scheme” to mislead investors over the number of vexatious spam accounts on its platform. The trial to adjudicate on all of this had been due to take place on 17 October.
Why has that trial been postponed?
On Monday, Musk said he would like to buy Twitter for the previously agreed $54.20 a share after all, perhaps mindful of widespread legal opinion that he would not win the trial.
However, talks since then to close the deal have foundered, reflecting how much bad blood there is between both sides. On Thursday, Musk asked the presiding judge, Kathaleen McCormick to pause the litigation while he gets funding to close the deal. Judge McCormick has granted his wish.
Why did Musk seek a delay?
Musk’s representatives argued in a filing on Thursday that Twitter would not “take yes for an answer” and would not agree to put the trial on hold. His lawyers said progress was under way to finalise a $12.5bn debt funding package integral to sealing the purchase but it would not be ready before 17 October. The judge has given both sides until 5pm on 28 October to close the deal or else the trial is back on at some point next month.
It appears Twitter does not trust Musk at all. In its filing on Thursday arguing against a delay, the company said the Tesla chief had spent months trying to delay a trial to derail the deal but now suddenly wants a delay to complete it. The filing says, scathingly, that Musk is promising “‘Trust us, … we mean it this time’”.
The social media platform says the request for a delay contains provisions that are an “invitation to further mischief and delay”, including the right to pursue all “claims and defences in the event a closing does not occur”. This appears to refer to Musk’s lawsuit against Twitter claiming it has deliberately miscounted spam accounts on its platform.
The company adds that Musk has breached the agreement by failing, as per the merger document, to do “all things necessary, proper or advisable” to sort the debt financing. The filing claims to have talked to a representative of one of Musk’s lending banks, who said that as of Thursday morning they had not received notice that he intended to close the deal.
What happens next?
Musk needs to try to close the deal by 28 October, against a backdrop of Twitter not trusting him, the debt market having difficulties and the threat of a trial that could make him complete the deal regardless. Twitter believes that Musk’s last-ditch offer to close the deal represents a shift in the terms by making his closing contingent on the debt financing coming through, something Twitter argues is not required by the merger agreement signed in April.
Even though banks have signed commitments to provide the financing and Musk’s lawyers said in their filing on Thursday that lenders are prepared to carry out their commitments, there is a scenario under which the debt financing falls through and then Musk attempts to walk away, paying a $1bn termination fee (as per the merger agreement). But a lot has to happen for that to come to pass. So there is more legal argument ahead for both sides even without a trial.