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What history suggests about Twitter vs. Musk’s outcome

We’re quite a distance from learning what will eventually Twitter after it has its day (or week) in court with Elon Musk, which he’s still attempting to delay. But one potential outcome involves the Tesla CEO being forced to obtain the social media marketing company, even though he doesn’t want to buy anymore.

The picture as a whole: “Specific performance” is really a legal concept that isn’t a historically common outcome in U.S. courts (except using areas like land purchases), however the Delaware Chancery Court went that route in several merger and acquisition (M&A) cases.

Catch up quick: One two-decade-old case, Tyson Foods’ acquisition of IBP Inc., has emerged as a favorite exemplory case of what can happen in Twitter vs. Musk.

  • Both companies struck a deal on Jan. 1, 2001, after Tyson prevailed within an intense auction process against Smithfield to obtain IBP for $30 a share.
  • But within 90 days, Tyson got cold feet and made a decision to leave from the offer, claiming IBP hid problems with its financial statements and poor business performance developing a material adverse effect, and that it deceived Tyson to ink the merger. IBP took it to court in Delaware for breaching their agreement.
  • Then-Vice Chancellor Leo Strine (who now works for just one of the primary firms representing Twitter against Musk) ruled that “IBP have not suffered a Material Adverse Effect within this is of the Agreement that excused Tyson’s failure to close the Merger.”
  • He also figured specific performance may be the “decisively preferable remedy.”

What they wrote: “This court have not found any compelling reason sellers in mergers and acquisitions must have less of the right to demand specific performance than buyers, Strine wrote in his explanation of his ruling.

Zoom out: If the tables were turned, Tyson would insist that nothing can replace the strategic gains of acquiring IBP at that time the biggest beef distributor and second-biggest pork distributor why should it vary here?

  • Moreover, IBP shareholders were offered the choice of taking Tyson stock rather than cash, providing them with the opportunity to talk about in the upside of the combined business, another irreplaceable facet of the offer.
  • Awarding damages wouldn’t normally only be complicated but “will lack any pretense to precision” given the likely disagreement over valuation, he noted.
  • “Finally, there is absolutely no doubt a remedy of specific performance is practicable,” Strine writes. “Tyson itself admits that the combination still makes strategic sense Tyson Foods continues to be thinking about purchasing IBP, but really wants to get its original price back and buy IBP off the day-old goods table.”

Between your lines: Delaware’s Chancery Court seems to err privately of whatever parties consent to within their contracts, UC Davis law professor John Patrick Hunt tells Axios.

  • And that reaches specific performance, in case a contract does stipulate that it is an available remedy at the mercy of certain conditions (as does Twitter’s contract with Musk).

Yes, but: In his decision, Strine noted that the implications of forcing the merger on the companies’ employees and communities weighed heavily on his mind. It suggests the Chancery Court could be sympathetic to the potential disaster of a forced merger.

  • Still, Hunt tells Axios that forcing Musk to obtain Twitter is a purchase of corporate shares. Nothing would oblige him to control the business himself. He could just passively bought it, as well as immediately sell it.

The intrigue: That isn’t how all Delaware Chancery Court cases where specific performance was ordered have proved.

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