“Why Elon Musk May Face Jail Time”- CNBC Host Reveals

Elon Musk is ‘legally wrong‘ for pulling out of $44 billion deal to buy Twitter and the analysts say if he is forced to buy the company it will ‘die slowly and painfully’ as a CNBC host claims the billionaire ‘may face jail time’ if he refuses.

CNBC’s David Faber made the claim when he appeared on Squawk on the Street, on Monday days after Musk announced he was walking away from the highly publicized deal.

Musk, 51, has shown solicitude that Twitter had been misleading many about the fake accounts on its platform, but has not presented any evidence to support his claims.

Musk agreed to $1 billion breakup fee as part of the backout agreement, although it appears Twitter CEO Parag Agrawal and the company are settling in for a legal fight to force the sale.

“There’s no way they’re going to take the walkaway fee,” Faber said on Monday. “They have specific performance in the contract. They are going to have a Delaware judge enforce that contract and say, these are the reasons why.”

“Then the question is, ok, you are forcing Mr. Musk to buy the company, does he actually agree to do it?’ Faber said. ‘There is this argument being said lately that, well, maybe he won’t comply with that. Then we would have a situation where they could put him in jail.”

Faber’s co-host Carl Quintanilla laughed at the notion and called the idea of Musk going to jail over the deal ‘funny.’

“I know you laugh, but that’s where we could end up,’ Faber said. ‘This is a man who doesn’t play by the rules.”

Faber said on the show Monday that there has been “no evidence presented thus far in any way to enhance” his accusations about Twitter’s number of fake accounts, adding that he’d have to produce evidence in court.

“Even if you were to prove that there were a higher number of bots, you still have to prove that it actually is a material adverse effect,” Faber said.

His co-host Jim Cramer responded to this saying that “the Twitter board is in trouble if they just get that walk away.”

“He (Musk) spent a lot of time, and his team has spent a lot of time with management going over very strong periods of open store, meaning that Musk really felt that they had gotten a really good look at it. So that is going to hold against them. I still think the likelihood that they get some sort of price cut is good. Boy, the board is in trouble if they just get that walk away.”

The entire saga has left observers baffled by what Wedbush analyst Dan Ives described as “one of the craziest business stories ever.”

“I think it starts off as a circus show and it’s ending as a circus show,” Ives told AFP. 

“For Twitter this fiasco is a nightmare scenario,” Ives said, comparing the battle to an ‘Everest-like uphill climb’ or a ‘Games of Thrones’ battle.  

Musk, who also heads SpaceX, has accused the social media giant of ‘false and misleading representations’ about the number of fake accounts on its platform.

His lawyers also point to recent Twitter employee layoffs and hiring freezes, which they say are contrary to the company’s obligation to continue operating normally.

Ann Lipton, a professor of law at Tulane University who specializes in corporate litigation, says “it’s not enough, unless he can show that the representations are not just false, but also that they dramatically call the fundamentals of the deal into question.”

“Looks very much like Musk is legally wrong.”

Those arguments may be valid, but they do not merit pulling out of the deal, says Lipton, dismissing them as ‘nitpicky.’

But another expert argued that Twitter is better off without the billionaire.

“It feels like a toy that a spoiled kid wants, but doesn’t really know what to do with, so he would get bored of it, and not give it the attention it deserves, and forget it in a corner… Twitter would die off slowly and painfully,” predicts Creative Strategies analyst Carolina Milanesi.

“Twitter is worse off than six months ago, but in the long run, it’s better off without him,” Milanesi says.

Such merger agreements are “designed to prevent buyers from getting cold feet and deciding they want to walk away,” law expert Lipton explained.

Besides Musk’s accusations of Twitter’s ‘false and misleading representations’ of the number of fake accounts, lawyers also point to recent Twitter employee layoffs and hiring freezes, which they say are contrary to the company’s obligation to continue operating normally.

Those arguments may be valid, but they do not merit pulling out of the deal, says Lipton, dismissing them as ‘nitpicky.’

That leaves the possibility that the multi-billionaire is actually trying to renegotiate the price down.

This tactic has been used successfully elsewhere, such as by LVMH. Two years ago, the global luxury giant broke off a deal to acquire Tiffany before getting a discount.

But experts don’t see how Musk and Twitter could agree on a different price at this point, given that the platform’s stock has lost more than a quarter of its value since late April.
‘Both have a lot to lose,’ Lipton points out.

If Twitter wins in court, the mercurial entrepreneur will, at a minimum, have to pay a few billion dollars in damages.

At worst, he could be forced to honor his commitment and buy Twitter at a price that has become exorbitant, while his fortune has melted down by tens of billions of dollars in recent months.
But though this would be a victory for shareholders, it would still leave Twitter in Musk’s hands and his libertarian vision of absolute free speech is not aligned with that of many of the employees, users and advertisers on whom the platform’s business model depends.

Any court proceedings are expected to last for months, especially since Musk ‘will drag it out,’ according to Lipton.