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Twitter plans to sue Elon Musk over broken buyout contract

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Yahoo Finance's Alexis Keenan breaks down the legal outcomes that could occur in the dispute between Tesla CEO Elon Musk and Twitter.

Video Transcript

- All right, here are three things you need to know. First, Elon Musk is terminating his merger agreement with Twitter because of what his team believes have been material breaches of multiple provisions in the agreement. Twitter stock is plunging in pre-market trading. And the company's ticker page is the most active on the Yahoo Finance platform.

However, Twitter isn't letting Musk get away just yet. In a tweet Friday, Twitter chairman Bret Taylor said the company 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." Joining us to discuss the legal side of this is Yahoo Finance's Alexis Keenan. Alexis, walk us through this, what might happen, what might not happen. And this is likely to be a saga to go on for some period of time, right?

ALEXIS KEENAN: I think so, Brian. Though the Delaware Chancery courts, where this matter would be litigated, they tend to act pretty quickly. It could be resolved in a matter of months legal experts say. But look, Musk has a number of options here, as does Twitter. Twitter has already expressed, according to Bloomberg, that it does intend early this week, to file a lawsuit against Musk, specifically to enforce the merger, meaning to force Musk to buy the company for $44 billion.

But if we take a look at what some of Musk's and Twitter's options are here, one is go to court. And the judge could find-- the chancellor, that is-- could find that they want to enforce it, force Musk to buy the company, saying that he has no right to this spam bot data that he is requesting. The judge could say that Twitter did, in fact, give enough information to Musk to close the deal.

Another option here for the chancellor assigned would be to free Musk from the contract, because Musk's Twitter bot representations that he is asking for. Let's say Twitter has misrepresented that number. We don't know if that's true or not at this point, but if so, the judge could find that there is a material adverse change that impacts the value of Twitter, and therefore, Musk's decision to buy the company at the price he offered.

One other option here, free Musk from the contract saying that Twitter violated some provision of the contract. There are other provisions aside from this spam bot issue that Musk and Twitter have been arguing about. There are provisions that require the company to turn over certain information. There's a lot of gray area in the contract on that one. And also, whether Musk and Twitter have representations and warranties, that is, to go through with exchanging information as the deal gets closer to closing.

- Now, the consensus seems to be that Musk is going to pay a billion dollars and not buy Twitter. That that's going to be the finding of the court. Is that what you're hearing from legal experts also? I mean, that sort of seems to be sort of like the common, I don't know, talk out there. But I don't know if that's the legal talk out there.

ALEXIS KEENAN: Pay the money. Well, at this point, Musk is trying to get out of this contract with not paying anything at all, other than the lawyers that are going to be highly priced ones to weasel out if he's able to do it. But he has a decent argument here. He's putting forth an argument saying that this contract requires Twitter to provide him with more useful data.

- They gave him all the information.

ALEXIS KEENAN: That?

- They literally said, here's everything we have, at one point.

ALEXIS KEENAN: Right, and I think his argument is that this is raw data that's not useful to him, because he can't analyze whether that 5% number that Twitter has expressed so many times in regulatory filings-- that they're spam bots are lower than that 5% number. He wants to verify that. And he says with the information that he has, he cannot do that.

Now, this contract isn't so clear for better or worse on either side as to whether there has to be detailed information. A judge could say, look, there needs to be more transparency here.

- So for the Twitter shareholders right now that have been watching this wild ride and now the decline because of Musk attempting to pull out of the deal, does that also mean that the shareholders might be able to take legal action against Musk as well, who misrepresented on the outset the stake that he was taking in the company, saying that it was a passive holding at first too?

ALEXIS KEENAN: Well, you already have shareholders expressing legal concerns and going after Musk, saying that he made misrepresentations along the way in this deal. So he's already caught up in that matter. And he's also potentially caught up with the SEC as to his representations at the early stages of this transaction.

I think that sure, shareholders could have discontent here. But I also ask whether, is it best at this juncture for the chancery court to push forward this deal? Is that what the shareholders are ultimately going to want? Do they want this company in Musk's hands? So that's another question I think that we have to be asking, is that the best thing for the shareholders?

- And then the question is, if they do that, will he listen?

ALEXIS KEENAN: Right. Right.

- What are they gonna do if he doesn't? Like, what remedies does the Delaware Chancery Court have? Can they put him in chancery jail? No, right?

ALEXIS KEENAN: Not a criminal matter. There are functions that the court has to force enforcement. But right, that could be a huge problem. And does the company want to be embroiled with a new owner who doesn't want to be its owner? Is that the best thing?

But enforcement could certainly be an issue along the way if Musk says, well, look, I'm just not going through with this. I'm not handing over that check.

- All right, we will see what the next step of this proceeding is. We have no doubt you'll be tracking that as well very closely. Yahoo Finance's own, Alexis Keenan. Thanks so much, Alexis.