Billionaire Elon Musk on Friday moved to back out of his $44 billion deal to buy Twitter, citing continued disagreements over the number of spam accounts on the platform.
While Musk may want to end his bid for Twitter, it’s not as easy as just walking away, according to legal experts. Instead, Musk likely faces a long battle ahead with Twitter in court that could take many months to resolve.
Twitter’s board is in a very difficult position, said Ann Lipton, a professor of corporate governance at Tulane Law School. “They can’t just say, ‘Alright, let’s spare us the pain, Elon we’ll let you knock the price down by $20 per share, or we’ll settle, we’ll agree to walk away if you just pay the billion dollar break fee. I mean, Twitter is just not in a position to be able to do that.”
Doing so would risk triggering a lawsuit by Twitter shareholders, she added. Twitter shareholders have already filed a lawsuit against the company and Elon Musk himself over the chaotic deal.
Merger agreements are “very hard to get out of,” and so far, Musk appears to have provided insufficient evidence backing up his claims that Twitter lied about its spam figures, Lipton said.
Meanwhile, Twitter’s chairman, Bret Taylor, has already promised that the company’s board will take legal action against Musk.
“The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement,” Taylor wrote in a tweet.
“We are confident we will prevail in the Delaware Court of Chancery,” Taylor added, referring to a Delaware court that settles disputes among businesses.
Not long after the agreement was reached, Musk began to hint that he was having second thoughts about the deal. In May, Musk said he decided to put his acquisition of Twitter “on hold” as he assessed the company’s claims that about 5% of its monetizable daily active users (mDAUs) are spam accounts. Twitter has said it has continued to share information with Musk, including turning over its “firehose,” the daily stream of tweets that flow through the platform.
In a letter on Friday, Musk’s lawyers accused Twitter of a “material breach of multiple provisions” of the deal agreement and claimed the company made “false and misleading representations” about the prevalence of fake accounts on its platform.
“There’s a lot of reason to doubt that it [Twitter] made such misrepresentations, but let’s assume that it did, it’s actually not a reason to cancel a merger agreement,” Lipton said in an interview.
In order for there to be a “material breach” of the deal agreement, Musk would have to prove that Twitter made false statements that were so egregious they’d have a long term impact on the company’s earnings potential, Lipton said.
“He has yet to put forth evidence that that is in fact the case,” she added.
Twitter appears to have the upper hand as the deal drama heads to court, Lipton said. The merger agreement includes a “specific performance clause,” which says Twitter has the right to sue Musk to force him to go through with the deal, as long as he still has the debt financing in place.
In the coming days, Twitter will likely file a lawsuit in Delaware and ask the judge to rule whether it violated the terms of the agreement, then order Musk to “perform his obligations under the contract and complete the merger,” said Brian Quinn, a professor at Boston College Law School.
After that, Quinn said he expects both parties will continue to make their arguments in court, as part of a litigation process that could take a year to play out. “For litigation, that’s quick,” he added.
Adam Sterling, executive director of the Berkeley Center for Law and Business told CNBC that Twitter has a strong legal case while Musk’s is less so.
“He (Musk) makes a number of legal arguments — I think all of questionable standing,” Sterling said, pointing to Musk’s filing Friday. “(He) first focused on bots on the platforms but also performance of the company so, he’s kind of throwing all these arguments out there.”
Musk and Twitter could also reach a settlement.
Twitter might agree to a minor change in the deal price of $54.20 per share in order to avoid litigation, Lipton said. That may not please Twitter shareholders who liked the first offer. The purchase price represents a 38% premium to the company’s $39.31 closing stock price on April 1, 2022, which was the last trading day before Mr. Musk disclosed his approximately 9% stake in the firm. Shares of Twitter closed at $30.04 on Friday.
It’s unclear what Musk would settle for, Lipton said.
“I don’t know that Musk just wants to knock one dollar or two off the price per share,” she said. “I think Musk wants to not have the deal or a fairly dramatic repricing. So I don’t think the parties are anywhere near settling right now.”
Sterling said that the Delaware Chancery court is “designed to address issues like this so, it could make Musk follow through on the deal but that it could get complicated in the process. “Twitter appears to have a very strong legal argument but we’ve not seen a precedent at this scale or an opponent like Elon Musk so, there’s many questions about what he will do.”
CNBC tech reporter Jennifer Elias contributed to this report.
Ford CEO says 65% of U.S. dealers agree to sell EVs
Ford F-150 Lightning trucks manufactured at the Rouge Electric Vehicle Center in Dearborn Michigan.
Courtesy: Ford Motor Co.
DETROIT – About 65% of Ford Motor’s dealers have agreed to sell electric vehicles as the company invests billions to expand production and sales of the battery-powered cars and trucks, CEO Jim Farley said Monday.
About 1,920 of Ford’s nearly 3,000 dealers in the U.S. agreed to sell EVs, according to Farley. He said roughly 80% of those dealers opted for the higher level of investment for EVs.
Ford offered its dealers the option to become “EV-certified” under one of two programs — with expected investments of $500,000 or $1.2 million. Dealers in the higher tier, which carries upfront costs of $900,000, receive “elite” certification and be allocated more EVs.
Ford, unlike crosstown rival General Motors, is allowing dealers to opt out of selling EVs and continue to sell the company’s cars. GM has offered buyouts to Buick and Cadillac dealers that don’t want to invest to sell EVs.
Dealers who decided not to invest in EVs may do so when Ford reopens the certification process in 2027.
“We think that the EV adoption in the U.S. will take time, so we wanted to give dealers a chance to come back,” Farley said during an Automotive News conference.
Ford’s plans to sell EVs have been a point of contention since the company split off its all-electric vehicle business earlier this year into a separate division known as Model e. Farley said the automaker and its dealers needed to lower costs, increase profits and deliver better, more consistent customer sales experiences.
Farley on Monday also reiterated that a direct-sales model is estimated to be thousands of dollars cheaper for the automaker than the auto industry’s traditional franchised system.
Wall Street analysts have largely viewed direct-to-consumer sales as a benefit to optimize profit. However, there have been growing pains for Tesla, which uses the sales model, when it comes to servicing its vehicles.
Ford’s current lineup of all-electric vehicles includes the Ford F-150 Lightning pickup, Mustang Mach-E crossover and e-Transit van. The automaker is expected to release a litany of other EVs globally under a plan to invest tens of billion of dollars in the technologies by 2026.
Tim Draper predicts bitcoin will reach $250,000 despite FTX collapse
Tim Draper, founder of Draper Associates, onstage at the Web Summit 2022 tech conference.
Ben McShane | Sportsfile via Getty Images
Venture capitalist Tim Draper thinks bitcoin will hit $250,000 a coin by the middle of 2023, even after a bruising year for the cryptocurrency marked by industry failures and sinking prices.
Draper previously predicted that bitcoin would top $250,000 by the end of 2022, but in early November, at the Web Summit tech conference in Lisbon, he said it would take until June 2023 for this to materialize.
He reaffirmed this position Saturday when asked how he felt about his price call following the collapse of FTX.
“I have extended my prediction by six months. $250k is still my number,” Draper told CNBC via email.
Bitcoin would need to rally nearly 1,400% from its current price of around $17,000 for Draper’s prediction to come true. The cryptocurrency has plunged over 60% since the start of the year.
Digital currencies are in the doldrums as tighter monetary policy from the Fed and a chain reaction of bankruptcies at major industry firms including Terra, Celsius and FTX have put intense pressure on prices.
FTX’s demise has also worsened an already severe liquidity crisis in the industry. Crypto exchange Gemini and lender Genesis are among the firms said to be impacted by the fallout from FTX’s insolvency.
Last week, veteran investor Mark Mobius told CNBC that bitcoin could crash to $10,000 next year, a more than 40% plunge from current prices. The co-founder of Mobius Capital Partners correctly called the drop to $20,000 this year.
Nevertheless, Draper is convinced that bitcoin, the world’s largest cryptocurrency, is set to rise in the new year.
“I expect a flight to quality and decentralized crypto like bitcoin, and for some of the weaker coins to become relics,” he told CNBC.
In 2014, Draper purchased 29,656 bitcoins confiscated by U.S. Marshals from the Silk Road dark web marketplace for $18.7 million. That year, he predicted the price of bitcoin would go to $10,000 in three years. Bitcoin went on to climb close to $20,000 in 2017.
Some of Draper’s other bets have soured, however. He invested in Theranos, a health startup that falsely claimed it was able to detect diseases with a few drops of blood. Elizabeth Holmes, Theranos’ founder, has been sentenced to 11 years in prison for fraud.
Draper’s rationale for bitcoin’s breakout next year is that there remains a massive untapped demographic for bitcoin: women.
“My assumption is that, since women control 80% of retail spending and only 1 in 7 bitcoin wallets are currently held by women, the dam is about to break,” Draper said.
Crypto has long had a gender disparity problem. According to a survey conducted for CNBC and Acorns by Momentive, twice as many men as women invest in digital assets (16% of men vs. 7% of women).
“Retailers will save roughly 2% on every purchase made in bitcoin vs dollars,” Draper added. “Once retailers realize that that 2% can double their profits, bitcoin will be ubiquitous.”
Payment middlemen such as Visa and Mastercard currently charge fees as high as 2% each time credit cardholders use their card to pay for something. Bitcoin offers a way for people to bypass the middlemen.
However, using the digital coin for everyday spending is tough, since its price is very volatile and the coin is not widely accepted as currency.
“When people can buy their food, clothing and shelter all in bitcoin, they will have no use for centralized banking fiat dollars,” Draper said.
“Management of fiat is centralized and erratic. When a politician decides to spend $10 trillion, your dollars become worth about 82 cents. Then the Fed needs to raise rates to make up for the spend, and those arbitrary centralized decisions create an inconsistent economy,” he added. Fiat currencies derive their worth from their issuing government, unlike cryptocurrencies.
Meanwhile, the next so-called bitcoin halving — which cuts the bitcoin rewards to bitcoin miners — in 2024 will also boost the cryptocurrency, according to Draper, as it chokes the supply over time. The total number of bitcoins that will ever be mined is capped at 21 million.
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