Elon Musk’s hostile claim to Twitter has no “legal effect”, experts say

Tesla CEO Elon Musk’s unsolicited bid to buy Twitter (TWTR) for $ 43 billion, unveiled on Thursday, is not a traditional takeover bid, so it could be serious or legally binding.

Securities lawyers say the erratic offer to privatize Twitter is not enough to suggest that it was a deliberate tactic to provoke rejection by Twitter shareholders, and in turn to give Musk a chance to own his now more valuable shares.

“If I had to guess, I would say he was making an unfunded, highly speculative offer that the board would reject to cover up for him to sell his shares now that his board seat game has flared up,” the university said. Kentucky law professor Alan Klugel said of Musk’s latest chess move:

“I honestly do not think it has much of a legal impact,” said Anat Beck, a law professor at Casey Western Reserve University School of Law.

Musk has amassed a 9.2% stake in Twitter since January, and in the last two weeks he has changed his mind about becoming a board member and keeping his stake as a passive investor. Because Musk revealed his position Shares of April 4 jumped from $ 39.31 at the close of trading on April 1 to $ 45.08 per share at the close of trading on Friday.

Days after he became an active investor, Musk set out a wide range of conditions in an amended application to the US Securities and Exchange Commission. At $ 54.20 a share, about 54% premium in the last day of trading, before buying the stock, Musk said in a text message to the company’s management that he would buy the outstanding shares of Twitter.

Tesla CEO Elon Musk resigns after defending Tesla Inc.'s 2016 deal for SolarCity in Delaware Court, Wilmington, Delaware, USA, July 12, 2021.  REUTERS / Jonathan Ernst

Tesla CEO Elon Musk resigns after defending Tesla Inc.’s 2016 deal for SolarCity in Delaware Court, Wilmington, Delaware, USA, July 12, 2021. REUTERS / Jonathan Ernst.

Klugel և Others question Musk’s intention to buy Twitter, in part because his offer deviates from the way in which activist investors usually communicate their bids. Usually, they say that the activist investor is going to buy a company, presents the SEC Schedule TO, which distributes the offer to shareholders.

“If this was a real, serious attempt at hostile seizure, there is a formal tender procedure that includes things like investor consideration, a mandatory deadline for the board to respond,” Klugel said.

The move by the CEO of Tesla to buy Twitter is especially remarkable, as he is an infamous tweet. In 2018, Musk and Tesla agreed to pay $ 20 million each to settle SEC claims via Twitter over its claim that it was funding Tesla to be privatized. As part of the agreement, Musk and Tesla have agreed to pre-register Tesla with tweets that may contain relevant information about the electric car manufacturer.

In February 2022, Musk և Tesla was accused by the SEC of illegally exercising his notification right to investigate և his compliance with the agreement, և violating his right to speak freely on Twitter. If he eventually buys Twitter, Musk could ease his current policy by allowing users to tweet without any restrictions.

“I’ve invested in Twitter because I believe in its potential to become a platform for free speech around the world. I believe that free speech is a public imperative for a functioning democracy,” Musk wrote in his latest SEC statement.

However, there is more reason to suspect that Musk may eventually buy the service. Formal takeover bids, Klugel said, usually come with a time slip detailing the number of shares the activist intends to buy, the stock price, the investor’s funding source, the bidding reasons – any coincidence. By law, documents create a 20-day window when the offer must be left open.

Another dubious component of Musk’s proposal, according to some lawyers, is that Musk described it as “non-binding.” Bradley Wyatt, Dickinson Wright’s lawyer who specializes in capital market transactions, says Musk’s approach shows no signs of closing the deal.

“If he had taken Twitter very, very seriously, he could have started buying more shares through a bidding bid than going on board,” Wright said. The bid includes the purchase of a significant portion of the target company’s securities from shareholders.

The council, he explains, may be the place to negotiate the terms of the deal in advance, but in the end it does not have the power to sell Twitter.

John Livingston, a researcher at the Case Western Reserve Law School, says there is also compelling evidence that Musk’s proposal is legally flawed because it does not set out the scope or terms of funding required by the Williams Act, the federal law governing domains. .

“It can not be just an eternal offer to buy for $ 54.20. There is nothing [Musk’s filing] “It shows when this offer expires,” Livingston said.

And Livingston questions the name “OO”, which Musk uses in his documents to refer to his source of funding as “other”, which points to several possible sources.

“If it was a subsidiary, whether it was an independent company or a trust or something like that, they would list it,” Livingston said. “This vague kind of vacuum of where the money comes from is interesting to me.”

However, Musk has time to strengthen his offer, Livingston said. Failure to do so, he said, could signal Musk was going to sell his shares.

“He is pushing the boundaries,” Beck said, adding that Musk’s advisers were aware of the flaws in the offer. “Here you are talking about very complicated parties.”

The purpose of the Williams Act is to protect shareholders from false, defective or misleading bids. “This is incomplete. “We do not know where the money is coming from,” Beck said. “I do not care how much it costs. I want to see where the money comes from, if I am a shareholder. ”

To liquidate its shares in Twitter, as long as he remains an active investor, federal law will require Musk to publicly disclose any contributions in excess of 1% of his Twitter holdings. This could lead to a sell-off, which would lower the price of Twitter, leading to a significant drop in the value of Musk Holdings.

Alexis Keenan is a legal correspondent for Yahoo Finance. Follow Alexis on Twitter @alexiskweed:.

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