Canada: Twitter v. Elon Musk - Part 2: The Outer Limits Of Access To Information Covenants

Josh Lavine (00:05): I'm going to provide an overview of the access to information covenant typically found in M&A agreements, the specific dispute that has arisen on the Twitter transaction, and some immediate takeaways for M&A practitioners and access to information clause is a very standard provision in acquisition agreements. As Andrew explained, it provides a target company during the period after the purchase agreement has been signed and before the transaction is closed, the opportunity to request additional information about the company or its business. It's not a provision that tends to be at the top of the list in terms of the most contentious or heavily-negotiated, and that's because it's generally understood that a buyer often has more work to do after entering into the purchase agreement that may require additional information. For example, the purchaser may need to make additional efforts to secure financing, the buyer may need to prepare for closing and any required filings or disclosure obligations that the buyer may have, and there may be integration planning required for once the transaction is completed. But it's also customary for there to be limits on the information a buyer may request. For example, information requests typically need to be reasonable and must comply with law and any confidentiality obligations that the target may have, and cannot unreasonably interfere with the operation of the target's business. In the Twitter merger agreement, Twitter agreed to provide additional information concerning Twitter and its business "as reasonably requested by Mr. Musk for any reasonable business purpose related to the consummation of the transaction". The question at the heart of this dispute is the intended scope of this access right. More specifically, if the phrase "related to the consummation of the transaction" should be interpreted narrowly, or as Twitter has described it in a letter to Mr. Musk's counsel, for the "very specific purpose of facilitating the closing of the transaction". Or if, as Mr. Musk may prefer, the access rights should be interpreted broadly to allow Mr. Musk to conduct due diligence in order to investigate an alleged or suspected breach of representation. In a response from Mr. Musk's attorneys to Twitter, it was noted that Mr. Musk specifically negotiated this access right precisely so that he could conduct due diligence after the agreement was signed. We expect most target companies would be uncomfortable with such a broad interpretation of this access right for a couple reasons. First, due diligence is conducted generally before a binding agreement is entered into and announced, not after. And the Twitter merger agreement did not contain a due diligence closing condition. The access covenant is not generally thought of as giving the buyer an opportunity for a "second kick at the can", so to speak at due diligence. And second, and perhaps most importantly, the target will not want to put itself in a position where it is required to provide potentially endless information to a buyer who may in fact be searching for a reason to terminate the acquisition agreement, and particularly a buyer such as Mr. Musk, who as Andrew noted, suggested that he may wish to build a rival social media platform. Here in Canada, this issue was recently considered by the Ontario Superior Court of Justice, in its Fairstone Financial/Duo Bank decision. In that case, the purchaser submitted numerous information requests to the target, many of which were submitted after the purchaser alleged a breach of the purchase agreement. And the court in Duo found that many of these requests were not legitimate requests for information and were not required to close the transaction. It will be interesting to see how the Delaware Court addresses this key issue between Twitter and Mr. Musk. But in the meantime, I think the key takeaways for M&A practitioners is to pay careful attention to the drafting of the access covenant, and more specifically, avoid open-ended covenants that grant a right to "all information requested" or "all information reasonably requested" without also specifying the purpose for which information may be requested. And when setting out the purpose, consider addressing head on if the purchaser may request information for purposes of verifying any representations and warranties in the purchase agreement, and if the target is required to provide information if the purchaser is in breach of the purchaser agreement, or if the target has a reasonable basis to believe that the purchaser no longer wishes to proceed with closing. And so the question for now is where is the Twitter case likely to go from here?