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Wednesday, August 17, 2022

Explainer: Twitter, Musk and the Delaware Chancery Court

DOVER, Dell ( Associated Press) — Twitter’s lawsuit for forcing billionaire Elon Musk to fulfill his promise to buy the social media giant will be resolved in a small but powerful Delaware court mired in high-stakes business disputes. Is expert.

Twitter sued Musk in Delaware’s Court of Chancery to force him to complete a $44 billion acquisition deal in April.

Lawyers for both sides are scheduled for their first hearing on Tuesday before Court Chancellor Kathleen St. Jude McCormick.

What is the lawsuit about?

Musk, the world’s richest man, had promised to pay $54.20 per share for Twitter, but now wants to back out of the deal. They claim that the company failed to provide sufficient information about the number of fake, or “spam bot,” Twitter accounts, and that it violated its obligations under the deal by firing top managers and firing a significant number of employees. has done.

Twitter argues that electric car maker and CEO of solar power company Tesla Inc. does. According to the lawsuit, the value of Musk’s shares in Tesla, which he was supposed to attract to help finance the acquisition, has declined by more than $100 billion since November.

If the other party is found responsible for the failure of the agreement, either Musk or Twitter would be entitled to a breakup fee of $1 billion. Twitter, however, wants more, and is seeking a court order for Musk to comply with the deal.

When does the test start?

Twitter’s lawyers are demanding the court to expedite the matter. He has proposed a four-day trial from September 19.

What is the Court of Chancery?

The Court of Chancery, established in 1792, traces its roots to the Chancery of the High Court of Great Britain, which in turn developed from an older institution in feudal England known as the King’s Chapel. The Court, seen by the Lord Chancellor as “the keeper of the King’s conscience”, served as an alternative to the more rigid and inefficient common law courts. It has the power to offer measures such as injunctions, property administration, and, in particular, “specific performance” that can compel a party to complete a transaction against its will.

The 230-year-old Chancery Court typically handles civil cases where a plaintiff is seeking non-monetary damages. Such matters 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 each other.

How does the Court of Chancery work today?

Seven judges of the Delaware Court of Chancery exercise these powers today, making it a major site of high-stakes commercial disputes. Delaware has a well-established and carefully nurtured body of corporate case law dating back to 1899 and is the corporate home of more than one million business entities, including over 60% of Fortune 500 companies. Many merger agreements, in fact, specify that any dispute will be heard by a Delaware Chancery Court judge.

Lawrence Hammermesh, executive director of the University of Law and Economics’ Institute for Law and Economics, said, “It’s not that they’re more talented than judges in other states, they have a lot more exposure to this stuff and they don’t care about it.” I’m very sophisticated.” Pennsylvania.

Has Musk been to this court before?

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

Hammermesh, a former professor of corporate and business law at Widener University Delaware Law School, said the specific performance sought by Twitter is a “very rare” measure, and it is uncertain whether the court will force Musk to complete the deal.

“There are many instances where a judge can say, ‘Buyer, you are infringing,’ but the remedy is a termination fee,” he said. “Looking at what I have seen so far, my gut instinct is that Twitter has legally got the upper hand. Will they get full exclusive exposure or just breakup charges is a little hard to say.”

How has the court worked in the past?

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

In 2001, poultry giant Tyson Foods Inc. was ordered to complete its $3.2 billion acquisition of Meatpacker IBP Inc. after a judge approved IBP’s claim for conspicuous performance.

Most recently, a Chancery judge last year ordered private equity firm Kohlberg & Co. to close its $550 million purchase of DecoPack Holdings Inc., which sells cake decorations and technology to supermarkets for in-store bakeries. McCormick said Kohlberg failed to demonstrate that the decline in DecoPack sales amid the coronavirus pandemic constituted a “material adverse effect,” allowing buyers to turn away. McCormick, who was sworn in as chancellor, or chief justice of the court, just a week after his decision, described it as a “victory to the certainty of the deal”.

On the other hand, Vice Chancellor J. Travis Laster announced in 2018 that a pharmaceutical company targeted for merger had experienced such a deterioration in its financial position that it amounted to a material adverse effect, allowing the proposed buyer to terminate the deal. The ruling marked the first time to the court the existence of a material adverse effect, or MAE, in a business transaction. This allowed German health care company Fresenius Kabi AG to walk away from a $4.3 billion acquisition of US generic drug maker Acorn Inc.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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