Limited Specific Performance in the Musk-Twitter Case and Beyond

Abstract

Twitter’s suit against Elon Musk is one of the most closely watched corporate law cases in a generation. From even before Musk agreed to acquire Twitter through his purported termination of the agreement and the subsequent litigation, the case has drawn unprecedented attention in part because of the high visibility of the target, as well as the spectacle of bots, spam, whistleblowers, and the colorful personality of Musk himself. The case will determine who controls one of the most powerful and influential communications platforms in existence, with effects that will reverberate throughout the world.

The importance of Twitter itself threatens to overshadow the fact that the issues in the case implicate the fundamental economics of M&A deal-making. After Musk purported to terminate the deal, Twitter sued for specific performance of the merger agreement, which would force Musk to purchase the company rather than escape by paying the $1 (or perhaps $2) billion termination fee and damages cap. With some estimates of Twitter’s current value as low as $25 billion and an agreed price of approximately $46.5 billion, the remedy chosen by the court, completely aside from the adjudication of the merits of the case, could mean a difference of $20 billion or more. Thus, a vast sum of hinges on the interpretation a relatively short boilerplate provision at the end of the merger agreement.

A majority of expert commentators have opined that it is very likely that Twitter will receive specific performance in this case. This Essay raises some issues that may make the specific performance analysis more complicated than that consensus suggests. Among the central questions to be resolved is whether the parties themselves control equity jurisdiction, whether the specific performance remedy should be available in private equity deals if the debt financing is unavailable, and what the standards are for awarding specific performance in M&A cases. This broken deal reveals a certain brittleness of the current standard private equity deal documentation, which places enormous economic consequences on the court’s choice of remedy. The decision is certain to become a landmark because of the notoriety of the case, but the consequential decision for future deals is one of remedy that will shape private equity M&A specifically, and perhaps contract law more generally.

Keywords: mergers, M&A, twitter, musk, specific performance

JEL Classification: K22