Twitter Inc.’s Non-Disparagement Provision

By Joel G. MacMull | Partner

Unless you’ve been living in a cave this past week, you have no doubt already heard about the impending sale of Twitter Inc. to Tesla’s founder, Elon Musk, for the small sum of $44 billion dollars. Musk “believes that the company should be private to go through the changes that need to be made” and that Twitter has the “potential to be the platform for free speech around the globe, and [that] free speech is a societal imperative for a functioning democracy.”  

Well, earlier this week the Agreement and Merger Plan for the deal was made public with the SEC. And, while I don’t usually pay attention to these sorts of filings, I made an exception in this case. I’m glad I did. The Merger Agreement contains all the customary dry provisions throughout its 71-plus pages that we’d all expect from a deal of this size. But tucked away in Section 6.8, entitled Public Announcements, is this little ditty:

Notwithstanding the foregoing, the Equity Investor [Musk] shall be permitted to issue Tweets about the Merger or the transactions contemplated hereby so long as such Tweets do not disparage the Company [Twitter] or any of its Representatives.

Now, one does not need to actually follow Musk on Twitter to know that of all the Twitter’s users on earth, he is among the most opinioned and rarely holds back in his criticisms. Accordingly, between now and the closing time frame for the deal, around September or October later this year, I suspect we’re going to hear more — potentially much more — from Twitter about its invocation of this provision. Added to this the termination fee of $1 billion that Musk must pay to Twitter if the deal doesn’t close, which, while not inconsequential, I’ve read is not unusual for a deal of this size, and we’ve got all the hallmarks for the showdown of the century. A breach of Section 6.8 by Musk could have some very interesting ramifications. The termination language reads, in relevant part (Parent is the corp. created by Musk which is buying Twitter):

The Merger Agreement also provides that Twitter, on one hand, or Parent and Acquisition Sub, on the other hand, may specifically enforce the obligations under the Merger Agreement, except that Twitter may only cause Mr. Musk’s equity financing commitment to be funded in circumstances where the conditions to Parent’s and Acquisition Sub’s obligations to consummate the Merger are satisfied and the debt and margin loan financing is funded or available. As described above, if the conditions to Parent’s and Acquisition Sub’s obligations to complete the Merger are satisfied and Parent fails to consummate the Merger as required pursuant to the Merger Agreement, including because the equity, debt and/or margin loan financing is not funded, Parent will be required to pay Twitter a termination fee of $1.0 billion.

Here's my predication (or, if not an outright predication, my litigation wish): Musk will breach Section 6.8. Twitter will then threaten Musk that he’s breached, or depending on how serious his statements may be, might even sue him. Doing so, in turn, will lead to the demise of the deal and Musk won’t close. Alas, litigation will ensue over the $1 billion termination fee. For what it’s worth, Mr. Musk, I don’t read the termination clause to apply to a breach of Section 6.8. When the time comes, my contact information is set forth below. Feel free to contact me. 

The content of this article is for informational purposes only and should not be construed as legal advice or a legal opinion. You should consult a lawyer concerning your specific situation and any legal questions you may have.

Joel G. MacMull | Partner and Chair, Intellectual Property, Brand Management, and Internet Law, jmacmull@mblawfirm.com, 973-295-3652