The judge presiding over the Twitter v Elon Musk trial in Delaware says the case will go ahead on 17 October because neither side has asked for a postponement yet.
Nonetheless, both sides still have to bridge a sizeable gap in trust that has emerged between them in recent months. So what might happen next?
Will the Delaware trial go ahead?
Judge Kathaleen McCormick wrote on Wednesday that she was pressing on with preparations for the trial on 17 October because neither party had asked for a “stay”, or pause, in legal proceedings. Musk’s representatives have told Twitter that adjourning the trial is a precondition for closing the deal.
News emerged overnight that Twitter has already made one gesture that indicates movement on delaying proceedings. Questioning of Musk by Twitter’s lawyers had been due to take place on Thursday but has been postponed. The deposition was part of preparations for the trial.
Why the delay accepting Musk’s offer?
There is a lack of trust, on Twitter’s side particularly. Both parties have been waging a costly legal battle for several months now, in which Twitter has accused the multibillionaire of being a “model of bad faith” while he has accused the company of running a “scheme” to mislead investors. Twitter said in its recent results that the uncertainty had damaged its financial performance.
It is also worth remembering that Musk signed a formal agreement to buy Twitter and then attempted to renege on it. Twitter will want certainty that the deal is going to close before requesting a postponement of the trial.
McCormick’s statement that the trial is still proceeding as things stand adds to the pressure on Musk, says John Coffee, a professor of law at Columbia University in New York. “If he tries to negotiate some delay … Twitter can say that we are ready to present our case on 17 October. Everyone knows that Musk is volatile and could change his mind again and they are staying prepared.”
Is Musk’s financing an issue?
The letter from the Tesla CEO’s lawyers to Twitter offers to close the deal subject to the trial being adjourned and “pending receipt of the proceeds of the debt financing”. Morgan Stanley is leading a consortium of banks that have pledged $13bn to help fund the deal and the market for buyout loans does not look good in an environment where global interest rates are rising.
Last month, banks including Bank of America and Goldman Sachs were reportedly hit by a loss of about $600m – they had to sell on the debt at a discount – on the sale of about $8.6bn in debt backing the private equity buyout of software company Citrix Systems.
Nonetheless, Morgan Stanley and other banks in the funding consortium have committed to providing the debt for the Twitter purchase. The deal agreement also states that the debt financing is “not a condition to the closing” of the sale.
Brian Quinn, a professor at Boston College law school, said the only factor that could derail the debt financing is Twitter suffering a company material adverse effect (MAE) where the value of the business is damaged so substantially that it renders the deal invalid. Musk has argued in a countersuit against Twitter, also due to be heard in the Delaware trial, that Twitter’s problem with spam accounts represents an MAE.
“The banks’ commitment to finance this deal at closing isn’t subject to many conditions,” says Quinn. “Indeed, there is only one condition: that Twitter not have suffered an MAE. The prospects of that being true have been low from the start of this litigation.”
If there is a trial, has Musk damaged his case?
You will struggle to find a legal expert who thinks Musk has a strong chance of walking away from the deal. But if his offer to close the deal does not come off, it will not necessarily count against him, says Quinn.
“To the extent that parties attempt to settle cases before trial – as here - such settlement efforts do not give rise to adverse inferences from the finder of fact, the judge.”’
Nonetheless, by offering to close the deal ahead of the trial, Musk appears to be acknowledging that his chances of success, or avoiding collateral damage, are slim.