Elon Musk offered to buy Twitter at its original purchase price on Monday — a rare move for a billionaire that has never been one to back down from a legal battle.
"Musk was going to lose the case," Erik Gordon, a business law professor at University of Michigan, told Insider. "His lawyers knew that. Twitter's lawyers knew that. His only hope was for Twitter to cave, and they didn't."
Expectations for a settlement deal rose last week. Several legal experts said the looming five-day trial in Delaware presented too many downsides for Musk, as Twitter had a strong case against Musk's arguments. Had he gone to trial, the almost certain outcome was that he would have be forced to acquire Twitter for $44 billion, or $54.20 a share — the price he initially agreed to.
A change of tactic
Still, Musk deciding to head off a trial by renewing his offer, and not even demanding a discount, was a surprise. The company's stock jumped more than 22% to $52 on Tuesday after the news.
"It is very rare for people to walk back to the table and accept a previously-rejected agreement," said Leigh Thompson, a professor at Northwestern and an expert on dispute resolution. "This is socially costly for anyone, but particularly for Musk who risks losing face."
It's a notable change of tactic for the billionaire, who has previously taken lawsuits about his public comments, tweets and acquisitions as far as they would go, often winning as a result.
Earlier this year, Musk was the victor in a $13 billion lawsuit in Delaware Court of Chancery, where the Twitter dispute is being handled, over Tesla's acquisition of SolarCity. Other lawsuits Musk has won over the years include the infamous "pedo guy" case. He's also publicly sparred with several notable public figures and agencies, including the Securities and Exchange Commission, the United Auto Workers Union, and the President of the United States.
Robert Miller, a professor and expert of acquisition law and Delaware proceedings, said Musk had a pretty good case in the SolarCity battle, but not with Twitter.
Angelo Zino, an analyst at CFRA Research, said he was "slightly shocked" that Musk did not push for a lower price, though the billionaire may have realized an "ugly court battle" could only damage the asset he would be forced to acquire.
"Musk likely realized that the odds of a victory were slim to none," Zino added.
Musk was scheduled for a deposition next week, a factor that probably contributed to his desire to settle rather than risk the possibility of perjuring himself, Josh White, assistant professor of finance at Vanderbilt University, said. Musk initially delayed his deposition last month.
"Cases often settle on the verge of trial; and CEOs like Musk often don't like to be deposed and they avoid it if they can," Ann Lipton, a business law professor at Tulane University Law School, said.
"If you're heading into a deposition where you'll be filleted for hours over all of the texts you've been sending, that's not fun at all," Miller added.
The 'bot' problem
Other depositions in the case also likely provided additional motivation to settle. Twitter CEO Parag Agrawal was deposed on Monday by lawyers for Musk. Last week, Twitter whistleblower Peiter "Mudge" Zatko was also deposed by lawyers on both sides of the case. They were arguably two of the biggest depositions in the case and neither turned up information seen as helpful to Musk's central claims, according to a person familiar with the case.
Musk has argued that Twitter executives knew the company had a much more serious problem with "bot" or inauthentic accounts and intentionally hid the information from the public. Twitter countered that Musk was attempting to avoid the purchase for economic reasons and even accused him of planning to create a competing platform. Other parts of the pretrial discovery process seemed to break in favor of these Twitter's claims.
Last week, hundreds of text messages between Musk and some of the biggest names in tech and media were released as a part of the discovery process. The text haul showed when and why Musk began to cool on the deal. In one May exchange with a banker at Morgan Stanley, he asked to "slow down" the acquisition due to Russia's invasion of Ukraine.
"Discovery didn't do enough damage to Twitter," Gordon said. "It hurt him more than it hurt the company."
Experts previously told Insider the texts gave the billionaire an even "weaker stance" in the court battle. In pretrial discovery hearings, Delaware Court of Chancery Judge Kathaleen St. J. McCormick has also appeared to rule in Twitter's favor on several occasions, including in allowing the company an expedited trial.
The early resolution could help Musk avoid even more legal fees, estimated by one legal source to be in excess of $100 million. Though it's unlikely to be a high priority for Musk, who will be paying Twitter's legal expenses as well if he buys the company.
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Contact Grace Kay at gkay@insider.com.
