Musk & Twitter

A lot of digital ink has been spilled over the past week since Elon Musk announced that he was calling off his deal to acquire Twitter. There was a hue and a cry, especially among lawyers, who argued, somewhat convincingly, that Musk had signed a binding agreement to acquire Twitter at $54.20 per share. They further argued that because the agreement was binding, Musk must go through with his acquisition. Twitter would prevail in a court of law, we are assured, because contracts are binding and the rule of law is sacrosanct.

Bloomberg columnist Matt Levine writes:

The fact that Musk is working in such bad faith here--that he seems so unconcerned with law and the contract he signed--cuts both ways. On the one hand, it will certainly annoy a Delaware chancellor; Delaware likes to think of itself as a stable place for corporate deals, with predictable law and binding contracts, and Musk's antics undermine that. On the other hand it might intimidate a Delaware chancellor: What if the court orders Musk to close the deal and he says no? They're not gonna put him in Chancery jail. The guy is pretty contemptuous of legal authority; he thinks he is above the law and he might be right. A showdown between Musk and a judge might undermine Delaware corporate law more than letting him weasel out of the deal would.

This is a perfectly reasonable argument. It's also an argument you would expect from a lawyer, and Matt Levine is indeed a lawyer, or at least formerly practiced law. And, yes, it's true: Elon often seems to act as if he thinks he is above the law.

And, to add fuel to the fire, Bret Taylor, Twitter's Chairman of the Board (and co-CEO of Salesforce) announced Twitter's intention to enforce the merger agreement in the Delaware Court of Chancery:

I leave the question of whether the agreement that Elon Musk and Twitter signed is a binding agreement. More pertinently I think Twitter is looking for a way to get out of the deal, irrespective of its Chairman's public comments.  Morale is reportedly low:

Inside Twitter, Musk's offer was met with confusion and falling morale, especially after Musk publicly criticized one of Twitter's top lawyers in content-moderation decisions.

As Twitter executives prepared for the deal to move forward, the company instituted a hiring freeze, halted discretionary spending and fired two top managers. The San Francisco company has also been laying off staff, most recently part of its talent acquisition team.

It's hard to retain employees in a competitive labor market when morale is low and your competitors' recruiters are circling. And when morale is low, a company can quickly circle the drain.

To my way of thinking, the question is not whether Musk signed a binding agreement, or whether the rule of law is sacrosanct. (He probably did and it is.) The question is whether it is in Twitter's interest to engage in protracted litigation with a man worth a quarter trillion dollars, in the hopes of enforcing that binding contract and upholding the rule of law. And on balance it very well may not be worth it to them to do so, given the negative effects that protracted and very public litigation has on employee morale.

In other words, I view this less as a legal problem and more of a business one. Elon Musk no longer seems interested in acquiring Twitter, Twitter's employees are unhappy and morale is low, so why pursue a suitor who's uninterested? Call off the wedding and fix your internal problems.