If Elon Musk Walks Away From His $44 Billion Twitter Deal, He Could Face a Legal Nightmare

May 19, 2022

M&A contracts are generally designed to insulate parties from the risk of the other side backing out. These kinds of contracts have tightened up after a slew of event cancellations during the pandemic tested the strength of “force majeure” clauses in agreements, according to corporate law experts. Such provisions are typically meant to allow parties to point to unforeseen events, like the start of the COVID-19 pandemic, to argue that they should be released from their contracts.

Since then, lawyers drafting deals have been savvy about spelling out a comprehensive list of excuses that prospective buyers can’t use to back out of deals, Alon Kapen, a transactions partner at Farrell Fritz, P.C., said.

In this case, the Twitter deal language enumerates a long list of events that would not count as a “material adverse effect” — lawyer talk for any event that hurts the business — that would allow Musk to walk away. For instance, the ongoing market collapse affecting tech stocks likely can’t be cited as a reason to break the agreement, since Musk’s contract excludes any “circumstance generally affecting any of the industries or markets in which the company or its subsidiaries operate.”

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