The harassment claims probably aren’t enough to scuttle the transaction. Maybe they should be, though.
Ah, here you were thinking that Elon Musk’s—baffling, quixotic—crusade against spam bots was the most important thing we’d need to discuss in Musk-Twitter-dom this week. Well, it’s not, and that comes from the fresh amount of uncertainty injected into Elon Musk’s will-he-won’t-he buyout of Twitter on Thursday evening when Insider detailed sexual misconduct allegations against him. His SpaceX allegedly paid a former company flight attendant $250,000 to silence her after he exposed his penis to her during a massage and propositioned her for sex. Musk told Insider there’s “a lot more to this story” without going into further detail and has sought to characterize the reporting as a politically motivated attack on him, sparked by his outspoken desire to roll back moderation policies at Twitter if he actually does buy the company. How do the allegations affect his proposed Twitter takeover? It probably—probably—won’t. And that, reasonably, is sure to disappoint anyone who doesn’t buy Musk’s political-smear-job defense and falls into the camp that believes CEOs shouldn’t go around showing off their schmeckles to their employees. But, but! There are a couple longshot possibilities, with emphasis being very much on the word “longshot,” where the allegations might lead. Twitter’s board might, might be able to justifiably change its stance on the deal by citing these sexual-harassment allegations. That could involve the board turning to Section 6.5(d) of the merger agreement, a so-called “intervening event,” which basically means something bad came up unexpectedly after the deal was signed. Or they maybe could use Section 5.1(a), the so-called “Parent Material Adverse Effect” clause, which basically means if the acquirer (Musk in this case) has hidden a fact that would significantly affect the ability to close the deal, the acquiree (Twitter) can walk away.
“Maybe, maybe, maybe the board can change its recommendation,” says Matteo Gatti, a Rutgers University law professor who specializes in corporate litigation.
