The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
In today's Wall Street Journal, J.B. Heaton and Professor Todd Henderson argue that Twitter's lawsuit against Elon Musk, seeking to force him to follow through with his offer to buy the company, is unlikely to prevail. They write:
The merger agreement in this case could be read in a way that permits a court to order Mr. Musk to buy Twitter—he and two entities he controls agreed they would "not oppose" such an order—through a remedy known as "specific performance." Although litigation is always uncertain, it is hard to imagine a court would force the purchase of a $44 billion corporation.
Specific performance is used fleetingly, and for good reason. . . .
Delaware courts have rarely ordered specific performance in merger agreements.
Professor Stephen Bainbridge (incidentally an occasional co-author of Professor Henderson), disagrees. In an earlier post, Professor Bainbridge explained why Musk is unlikely to be able to walk away from the deal. In a second post today, he disagrees with the Heaton-Henderson analysis, pointing out that specific performance is less rare than Heaton and Henderson suggest and reiterating his view that Twitter has a "strong case."
Professor Bainbridge writes:
The number of cases in which Delaware courts have been asked to grant specific performance of a merger agreement is relatively small, but the percentage of those cases in which Delaware courts have granted specific performance against a buyer wrongfully seeking to renege is relatively high . . .
specific performance clauses of the sort at issue here are routine and parties anticipate--apparently correctly--that Delaware courts will enforce them.
Further, Professor Bainbridge notes, the agreement between Musk and Twitter includes a reverse-breakup fee that could cost Musk quite a bit if he refuses to follow through on the deal. Such provisions, imposing a form of liquidated damages, are "presumptively valid" in Delaware courts. Further, Professor Bainbridge adds, it is not as if this was not an agreement between sophisticated parties, well-represented by counsel.
Whomever is right, this is a case to watch -- certainly one for the casebooks of the future.
UPDATE: Henderson and Heaton respond to Bainbridge here.