Contract agreements like these aren’t “meant to reflect” jack. Given that Twitter isn’t obviously worse off by $1 billion-if at all-a court might balk at imposing such a high fee. They aren’t supposed to act as a penalty. Breakup fees are supposed to reflect damages caused by a breach of contract. But it isn’t clear he will have to pay that much. Courts will be much more likely to make Musk pay to walk away than force him to walk down the aisle. The issue of the $1 billion breakup fee remains. Screwing up the finer points of Delaware law is one thing, but then they swing for the fences and try to get Elon out of everything and… wow: You can read up on that Hexion case here but the crux of it is this:Īlthough the court did not order specific performance of Hexion’s obligation to actually consummate the merger, it required Hexion to specifically perform its covenants related to financing and antitrust compliance and ruled that, if Hexion should fail to close, Huntsman’s potential damages would not be limited to the break-up fee. But the merger agreement doesn’t give shareholders this remedy. Musk agreed to pay and the price any other suitor would pay-like the homeowner finding another painter. In that case, the shareholders could have sued for the difference between the amount Mr. Musk by including a requirement that he pay damages to its shareholders if he walked away. Twitter could have raised the stakes for Mr. The authors also conjure up a convoluted theory how, assuming the court can’t order specific performance (it could), there’s no alternative remedy because making Musk pay the costs incurred by the merger he’s not performing won’t work because the shareholders aren’t a party to the lawsuit. So these yahoos didn’t bother to perform even cursory research on Delaware law before spouting off?ĭon’t worry… it’s going to be a trend in their article! Honestly, these cases are so simple to find. And, again, this is why we know it’s not “boilerplate.”Ĭoncrete steps to transform your team into a strategic force. At a certain point, when a billionaire and Skadden and Morgan Stanley all agree to an unusually explicit provision, that’s on them. The painter in this example said, “I’ll paint the castle” not “I’ll paint the castle and if I don’t I agree that I will not object when the court orders me to paint the castle.” That second one is the bit Musk agreed to. See, another reason specific performance is “used fleetingly” is that while it’s always a remedy available to courts, it’s not generally something people contract for.
There is only one Hearst Castle, and no other remedy can make the jilted buyer whole. If one agrees to sell Hearst Castle, but tries to back out when a higher bid emerges, a court may specifically enforce the contract. It is the ultimate act of coercion, and it makes sense only when there is no alternative. Specific performance is used fleetingly, and for good reason.
This is as bespoke as bespoke agreements get in this world. This is an agreement between two sophisticated entities, at arms length, represented by elite counsel AND elite banks who all hammered it out throughout the night. Twitter didn’t send over LegalZoom’s “Standard $43 Billion Merger Agreement” for Elon Musk to sign like the naive babe in the woods that only the richest man in the world could be. This case tests “the limits of boilerplate merger agreements” the same way the Super Bowl tests the NL adopting the designated hitter - this wasn’t a boilerplate merger agreement.
This is still the first paragraph of this thing and it’s already a joke.
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