What CEOs Really Get Paid under Long-term Incentive Plans

U.S. public firms increasingly use long-term performance-based plans to compensate CEOs. Under these plans, CEOs are expected to receive different levels of pay based on how the firm performs relative to various performance goals over multi-year periods. For example, Tesla gave Elon Musk a controversial pay package in 2018 with an initial estimated value of $2.6 billion and a potential payout of over $50 billion. However, to realize the payout, Musk needs to meet 12 market capitalization milestones and 16 revenue- or earnings-based milestones in the coming 10 years. What Musk will actually receive at the end of the performance … Read more

A New Twist in Twitter: Can Musk “Rely” on Zatko?

As we get closer to the October 17th scheduled trial date for the Twitter lawsuit to compel Elon Musk to complete his proposed $44 billion acquisition of Twitter, the charges and allegations are getting wilder and woolier. Once, this was a case in which the party seeking to escape the merger agreement (i.e., Musk) asserted that the percentage of Twitter accounts that were “bots” (or fake) amounted to a “material adverse change” that permitted the buyer to back away. Given both Delaware’s strong commitment to deal certainty and Musk’s seemingly reckless indifference to due diligence, most law professors saw Musk … Read more

Remedies for M&A Breach of Contract – The Cineplex Case

A remorseful acquirer wants to get out of a merger or acquisition agreement. It concocts a thin justification, which a court wisely rejects, finding unlawful breach. What is the appropriate remedy for harm done to the target?

While attention has focused on the controversy surrounding Elon Musk’s proposed acquisition of Twitter, this question arose in the recent Canadian decision of Cineplex v. Cineworld.[1] The Cineplex court rejected specific performance and instead, in a case of first impression, awarded the target CAD $1.24 billion in expectation damages for loss of anticipated synergies.

Our forthcoming paper takes a close look … Read more

How Does Delaware Do It? Judges Alone Don’t Explain Chancery’s Speed

On July 19, 2022, in the Twitter v. Musk litigation, Chancellor Kathaleen McCormick presided over what was likely the most widely observed hearing on a motion to expedite in the Delaware Court of Chancery’s history. While deal bust-ups are front page fare for the financial press, the high profile of this case brought the Court of Chancery further into the national consciousness than usual (though who among us hasn’t asked “what is a chancery?”). On the day of the hearing, the public access telephone line was, indeed, “lit,” hitting its maximum capacity with merger arbs (and other interested Read more

Twitter v. Musk: Where Are the Arbs?

Every pundit and commentator has by now analyzed the ongoing battle between Elon Musk and Twitter over Musk’s attempt to walk away from their deal. Almost all of these evaluations have rated Twitter as having a considerably stronger case, because (among other reasons) Musk did no due diligence, was well aware of the “bot” (or fake user) problem, negotiated no contractual protections directly addressed to these risks, and generally behaved inequitably, disparaging Twitter and toying with the SEC’s rules. Okay, but that raises an interesting puzzle: If the facts favor Twitter, and if Musk’s offer was for $54.20 a share … Read more

Predicting the Unpredictable: What Will Musk Do Next?

What did business journalists do before the arrival of Elon Musk? In those by-gone days, their page in the newspaper was gray, dull, and strewn with statistics. Now, it is filled with a continuing soap opera, as exciting as the sports page because it has drama, intrigue, and high emotion. The trash-talking that one hears in the NBA playoffs pales in comparison with Musk’s daily name-calling.

Currently, it appears that Musk wants to re-negotiate his $54.20 share price for Twitter because he offered a price well over Twitter’s peak value in an overheated market. That market is no longer overheated … Read more

The Twitter Board Bears Personal Responsibility for a Bad Outcome in the Twitter Sale

Let’s be clear about this: The Twitter board was under no legal compulsion to accept Elon Musk’s offer for the company and, from a corporate governance structural point of view, was in an unassailable position until the 2024 shareholders meeting.  The single motivating factor in its decision, apparently, was that the deal was a good one for Twitter shareholders, without apparent regard for how Musk might run the company and the consequence for the social media infrastructure that Twitter had created, much less the public welfare.  In my opinion, the board’s conduct was shockingly near-sighted, and the predictable adverse consequences … Read more

Tesla, SolarCity, and Inherent Coercion

Tesla notched a trifecta of (legal) headlines this week, with three inter-related developments coming out of the shareholder challenge to the firm’s 2016 purchase of SolarCity: a settlement, a summary judgment decision, and an almost-certain trial featuring testimony by none other than Elon Musk.  When originally announced, Tesla’s $2.6 billion acquisition of SolarCity was hailed as a “no brainer,” and it was eventually approved by a majority of Tesla’s independent shareholders. That said, it was Musk himself who was doing much of the aforementioned hailing – and observers couldn’t help but take note of the appreciable ownership stake he held … Read more

Bonfire of the Vanities–2018 Style: The Case of Elon Musk

Elon Musk came close to doing something truly unique. No, not his electric car. Rather, he was about to roll the dice with his shareholders’ equity.

Securities analysts estimate that somewhere between 25 and 35 percent of the value of Tesla would be sacrificed if Musk were no longer its CEO. No one else in Tesla’s management can credibly run the company, and Musk alone appears to be the visionary that can maintain its technological superiority. Yet, he placed this value at risk by rejecting a relatively generous (even soft) settlement offered by the SEC to resolve his notorious tweet … Read more