Judge In Twitter Lawsuit Has Previously Pushed Through M&A Deals: Could Elon Musk Be In Trouble?

Zinger Key Points
  • Few judges have forced a M&A deal to go through.
  • The judge in the Twitter lawsuit case is said to be no-nonsense and pushes for deals to go through.

Social media platform Twitter Inc TWTR and Elon Musk are headed to court over the $44-billion proposed buyout of the social media platform agreed to and then withdrawn from by the world's richest man. 

Here's why the judge assigned to the case could be bad news for Musk.

What Happened: Kathaleen McCormick was named the judge to oversee Twitter’s lawsuit against Musk, which seeks to force the completion of the approved $44-billion buyout of the social media company.

McCormick became the first woman to take over the role of chancellor or chief judge of the Court of Chancery, Reuters reports.

“She already has a track record of not putting up with some of the worst behavior that we see in these areas when people want to get out of deals,” University of California Berkeley law professor Adam Badawi said.

The professor, said McCormick, is a “serious, no-nonsense judge.” The judge calls for respect and integrity, he said. 

In a court case that has already seen Chuck Norris memes and poop emojis filed as evidence, could Musk’s sense of humor and lack of seriousness put him out of favor from the beginning?

The judge has a history of cases like this and is one of a limited number of jurors who have ordered a buyout to go through.

In 2021, McCormick ordered an affiliate of private equity company Kohlberg & Co LLC to complete a $550-million buyout of DecoPac Holding Inc. The judge rejected a claim by Kohlberg that it could walk away from the deal due to a lack of financing.

Related Link: Short Seller Hindenburg Research Reverses Course, Backs Twitter In Fight Against Musk 

Why It’s Important: Kohlberg argued it could walk away from the DecoPac deal due a violation of the merger agreement, which is similar to the argument being made by Tesla Inc TSLA CEO Musk in walking away from Twitter.

In the ruling on the DecoPac merger, McCormick called it “chalking up a victory for deal certainty.”

McCormick has also been shareholder friendly, making several rulings on shareholder lawsuits. 

A recent case saw McCormick rule that Carvana Co CVNA shareholders could sue the company’s board over a direct offering to select investors with shares trading lower during the COVID-19 pandemic.

The Dynamics In Delaware: With the announcement of McCormick's assignment to the lawsuit, the odds of the case not seeing court and Musk offering a lower buyout price instead could rise.

Before the lawsuit was official, Accelerate CEO Julian Klymochko told Benzinga the most likely scenario is a lower buyout offer.

Musk has argued there is a material adverse effect, an item Klymochko said stacks the cards against the Tesla CEO.

“Terminating a merger deal based on a MAE is extremely difficult, and has only happened once in history. This successful MAE-based merger termination occurred after the target’s business completely fell apart,” Klymochko said.

Klymochko, who has analyzed over 2,500 mergers and acquisitions, said history shows a likelihood companies agreeing to buyouts at lower prices instead of pushing through their lawsuits in most cases.

“Trials can go either way, and the acquirer could be forced to close or owe damages well in excess of the reverse break fee.”

Short seller Hindenburg Research announced a long position in shares of Twitter after the lawsuit was revealed, pulling a 180 from an earlier call that Musk held all the cards in the buyout.

The first hearing has been scheduled for July 19, where McCormick will consider a request by Twitter to expedite the case to September.

TWTR Price Action: Twitter shares were trading 2.26% higher to $37.08 Friday. 

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Posted In: M&ANewsSocial MediaLegalTop StoriesMediaTrading IdeasGeneralCourt of ChanceryElon MuskHindenburg ResearchJulian KlymochkoSocial Media Platformssocial media stocksTwitter lawsuit
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