4 ms·

Wow, it really does ask the court to force Elon to find financing and buy the company. I wonder if there's precedent here.

nocoiner 4y ago
EM already HAS committed financing. Now, he can probably blow up the commitment from his banks by continuing to engage in egregiously bad faith behavior, but under the merger agreement and the financing commitment papers, he’s required to draw on that committed debt. And, if the debt shows up like it is contractually obligated to do, and absent circumstances that are not present here, also use his own wealth to fund his equity commitment.
dragonwriter 4y ago
Yes, the remedy of requiring performance of contract obligations as a cure for breach rather than money damages is called “specific performance”. It has extensive history in general, and considerable history in corporate mergers and acquisitions (including, specifically, in the Delaware Court of Chancery, where this suit is.) Here’s a report of a Court of Chancery case from 2019, for example: https://www.lexology.com/library/detail.aspx?g=a116d0d4-2ca0-414d-8356-8b0343cab60a https://www.lexology.com/library/detail.aspx?g=a116d0d4-2ca0...
- walrus01 4y ago
  If I recall, suing to require contract performance also occurs at a much smaller scale if buyers or sellers try to back out of a finalized transaction for sales of a house or condo. If they then can't or won't, damages may be applied.
  - jrumbut 4y ago
    The damages are what is limited to $1 billion, but I wonder what the consequences are if specific performance is ordered and Musk just doesn't do it. Can the Court of Chancery put him in jail, does it automatically fall back to the $1 billion, something else?
    - walrus01 4y ago
      If it's the one billion, paying that is probably a great deal less painful than what is now the amount of money that would be lost selling much lower value Tesla stock, and buying Twitter at 54.20 compared to what Twitter is now trading at.
    - TheSpiceIsLife 4y ago
      I'd imagine the consequences of not complying with that sort of court order would be something like being prohibited from running a business and sitting on the board of any company, then further escalating to having your finances frozen.
    - asdfasgasdgasdg 4y ago
      If he does not pay, he will be found in contempt. Likely, the Chancery court would order a daily fine sufficiently large to eventually gain compliance. For example, they might order him to pay $50M/day that he's late on closing. Whatever is required to achieve compliance can be ordered, up to and including incarceration.
LaundroMat 4y ago
Yes, Matt Levine just described such a case from April this year in his newsletter: https://www.bloomberg.com/opinion/articles/2022-07-12/i-was-told-there-d-be-a-cake-merger https://www.bloomberg.com/opinion/articles/2022-07-12/i-was-...
JamesSwift 4y ago
Yes, not only is there precedent but the agreement very specifically lists this as a remedy. Not only that, but Twitter claims in the lawsuit they filed it was added during negotiation rather than being some standard clause in the initial version, as well as highlights that the agreement stipulates that if they go this route then there may be no objection to the process (in other words, Musk can't argue a technicality to try and prevent a hearing on forcing specific performance).

nocoiner 4y ago

EM already HAS committed financing. Now, he can probably blow up the commitment from his banks by continuing to engage in egregiously bad faith behavior, but under the merger agreement and the financing commitment papers, he’s required to draw on that committed debt. And, if the debt shows up like it is contractually obligated to do, and absent circumstances that are not present here, also use his own wealth to fund his equity commitment.

dragonwriter 4y ago

Yes, the remedy of requiring performance of contract obligations as a cure for breach rather than money damages is called “specific performance”. It has extensive history in general, and considerable history in corporate mergers and acquisitions (including, specifically, in the Delaware Court of Chancery, where this suit is.) Here’s a report of a Court of Chancery case from 2019, for example: https://www.lexology.com/library/detail.aspx?g=a116d0d4-2ca0-414d-8356-8b0343cab60a https://www.lexology.com/library/detail.aspx?g=a116d0d4-2ca0...

walrus01 4y ago
If I recall, suing to require contract performance also occurs at a much smaller scale if buyers or sellers try to back out of a finalized transaction for sales of a house or condo. If they then can't or won't, damages may be applied.
- jrumbut 4y ago
  The damages are what is limited to $1 billion, but I wonder what the consequences are if specific performance is ordered and Musk just doesn't do it. Can the Court of Chancery put him in jail, does it automatically fall back to the $1 billion, something else?
  - walrus01 4y ago
    If it's the one billion, paying that is probably a great deal less painful than what is now the amount of money that would be lost selling much lower value Tesla stock, and buying Twitter at 54.20 compared to what Twitter is now trading at.
  - TheSpiceIsLife 4y ago
    I'd imagine the consequences of not complying with that sort of court order would be something like being prohibited from running a business and sitting on the board of any company, then further escalating to having your finances frozen.
  - asdfasgasdgasdg 4y ago
    If he does not pay, he will be found in contempt. Likely, the Chancery court would order a daily fine sufficiently large to eventually gain compliance. For example, they might order him to pay $50M/day that he's late on closing. Whatever is required to achieve compliance can be ordered, up to and including incarceration.

LaundroMat 4y ago

Yes, Matt Levine just described such a case from April this year in his newsletter: https://www.bloomberg.com/opinion/articles/2022-07-12/i-was-told-there-d-be-a-cake-merger https://www.bloomberg.com/opinion/articles/2022-07-12/i-was-...

JamesSwift 4y ago

Yes, not only is there precedent but the agreement very specifically lists this as a remedy. Not only that, but Twitter claims in the lawsuit they filed it was added during negotiation rather than being some standard clause in the initial version, as well as highlights that the agreement stipulates that if they go this route then there may be no objection to the process (in other words, Musk can't argue a technicality to try and prevent a hearing on forcing specific performance).