Elon Musk is suing Twitter, saying he has the right to buy the social media service for $44 billion. He plans to fight with Twitter over the company’s future in court.
Mr. Musk agreed to purchase Twitter, but last week declared his intention to back out of the agreement. In response, Twitter filed a lawsuit in Chancery Court in Delaware. The court will decide whether Mr. Musk is on the hook for the purchase or if Twitter has violated its obligation to provide data requested by Mr. Musk and is allowed to back out of the agreement.
Elon Musk refuses to honor the obligations he signed for Twitter that were in the best interest of Twitter and its stockholders, according to a lawsuit by Twitter. Musk apparently believes that he is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away.
At the heart of this case is a lack of disclosure. To terminate the deal, Elon Musk claimed that Twitter wouldn’t hand over information about spam bots, also known as fake accounts, on their platform. He repeatedly said he didn’t believe their public statements that roughly 5% of their active users are bots. Twitter intentionally misled the public, he said, and obstructed his efforts to get more information about how they account for figures. Elon Musk has also taken aim at Twitter for not giving a warning before firing two key executives.
However, Twitter is capable of suing Mr. Musk in order to force the deal. His debt ensures an agreement is in place should he choose to purchase the company.
Twitter was not at all happy with Elon Musk’s decision to make public their correspondence. They claimed that his breach of contract was invalid and wrongful and that he knowingly broke the agreement when taking down his account. Twitter is confident in its spam detection numbers, adding that they use experts to ensure accuracy.
Twitter alleged that the CEO of both Elon Musk and Tesla is using an excuse due to declining stock prices as a pretext for leaving the deal. Twitter also argued that Elon Musk wants to wriggle out of the agreement because of presumed changes in the market.
Mr. Musk publicly insulted Twitter executives, without adhering to his word not to trash them, and secretly abandoned his efforts to get a deal with them. This caused him to breach his promise of using reasonable best efforts in getting the deal done.
Musk wanted an escape, but the merger agreement didn’t leave him much room.
Elon Musk tries backing out of $44 billion deal with Twitter and they sue
Sean Edgett, Twitter’s general counsel, informed employees of the suit in an internal memo on Tuesday. Twitter has also filed a motion for an expedited trial and is asking that the case be heard in September as it is critically important to resolve this matter quickly.
Twitter defended themselves in court against a buyout. They plan to hold the buyer fully accountable to fulfill his contractual obligations and believe they will prevail.
Elon Musk and twitter are in talks that could close on or before October 24th, pending the completion of regulatory approval.
Brian J.M. Quinn, a professor at Boston College Law School, said that he believed that Twitter’s legal arguments were strong. He noted that Elon Musk’s tweets were peppered throughout the lawsuit, including one tweet before signing the deal that showed he was aware of spam on Twitter. In this particular tweet, Mr. Musk wrote “we will defeat the spam bots or die trying.”
With the amount of time Elon Musk spends on Twitter, his lawyers are going to be very angry with him. His tweets have been used against him in court hearings and Mr. Quinn predicts they will only get worse if he continues to tweet.
Still, the threat of leaving Twitter could convince them to negotiate. This would give Musk an opportunity to buy the company at a discounted price, or to pay Twitter damages in lieu of divorcing the company.
If Mr. Musk successfully gets off Twitter, it could be disastrous for the company. The company’s stock has fallen more than 35 percent below his offer of $54.20 per share. In May, Mr. Agrawal said in a memo to employees that the company had not lived up to its business and financial goals.
After Twitter sued him, a response from Mr. Musk is expected to come soon. There are many steps that happen after this point, but they will likely focus on a Delaware hearing and disclosure process to find information that might be relevant to the case.
If Mr. Musk’s suit goes to trial, the judge will decide whether Twitter’s disclosures were harmful.
In the past, Delaware’s Chancery Court has prevented companies from trying to back out of deals. In 2001, for example, when Tyson Foods tried to back out of an acquisition of the meatpacker IBP, the court ruled that Tyson had to follow through with the agreement. In situations where the court allowed buyers to exit, it required them to pay damages. Cases, where sanctions were limited, ranged to $1 billion in fines.
Twitter has assembled legal teams to fight Musk’s efforts. The company’s lawyer at Wachtell Lipton, William Savitt, helped create the poison pill defense. It is famous for developing tactics to protect companies from hostile buyers.
He is different form other corporate raiders like Carl Ichan and Pershing Square. His opponent is his own complexity which makes him so different from any other raider before him.
Unlike many cases, the lawsuit is being handled by Musk himself with a team of lawyers from one of the best law firms.
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