MPL General Counsel Corner – A Little Bit of Buyer’s Remorse

October 09, 2022

This past week, Elon Musk tweeted he would in fact be following through on his purchase of Twitter.  One has to assume that he looked at his legal case and realized that a “Material Adverse Effect” argument was not a winning strategy.

By way of background, Musk notified Twitter that he wanted out of the deal back in July.  He claimed that Twitter misled him about the number of “bots” versus actual users of the system.  Twitter, as was expected, filed a suit against Musk to enforce the deal.

One of Musk’s key legal arguments was based on Material Adverse Effect, which essentially says that the underlying conditions which led to the deal have significantly changed and give him the right to terminate.  This argument is tough to prove because so many of the conditions that lead to it are negotiated and covered in the purchase agreement.  Moreover, he waived due diligence, which is where could have found out about the number of actual versus fake accounts.  Lastly, because there is so much time to negotiate the deal prior to signing the agreement, Courts in Delaware, which is where the case is being heard, set a very high bar for proving this type of claim.

So, what else was he be doing with this strategy?  One assumes that he tried to get a lower price.  Many of the conditions which allowed him to execute the agreement changed since he initially signed the deal.  Financing has become significantly more challenging with the rate increases, the outlook for the economy is certainly not positive and most importantly Tesla shares, like the rest of the market, have declined.  At least he tried, but I have to imagine there will be a period of buyer’s remorse for quite some time post-closing.

The bottom line is that its critical to understand what you negotiate when entering into a purchase/sale agreement.  The ability to get out of the deal as you get closer to the closing date becomes very limited.

Other items of interest:

Helpful Resource Pages

As always, please don’t hesitate to email myself (, Andy Miller (, Christian Miller (, Erik Spurlin (, Brad Leber ( or anyone in our office with questions or comments.  

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