Twitter sued Tesla CEO Elon Musk on Tuesday to force him to complete the $44 billion acquisition of the social media company.
Musk and Twitter have been bracing for a legal fight since
the billionaire said Friday he was backing off of his April agreement to buy
the company.
Twitter’s lawsuit opens with a sharply-worded accusation:
“Musk refuses to honor his obligations to Twitter and its stockholders because
the deal he signed no longer serves his personal interests.”
“Having mounted a public spectacle to put Twitter in play,
and having proposed and then signed a seller-friendly merger agreement, Musk
apparently believes that he — unlike every other party subject to Delaware
contract law — is free to change his mind, trash the company, disrupt its
operations, destroy stockholder value, and walk away,” the suit says.
Twitter filed its lawsuit in the Delaware Court of Chancery,
which frequently handles business disputes among the many corporations,
including Twitter, that are incorporated there.
As part of the April deal, Musk and Twitter had agreed to
pay each other a $1 billion breakup fee if either was responsible for the deal
falling through. The company could have pushed Musk to pay the hefty fee but is
going farther than that, trying to force him to complete the full $44 billion
purchase approved by the company’s board.
“Oh the irony lol,” Musk tweeted after Twitter filed the lawsuit,
without explanation.
The arguments and evidence laid out by Twitter are “very
strong and compelling” and likely to get a receptive ear in the Delaware court,
which doesn’t look kindly on sophisticated buyers backing off of deals, said
Brian Quinn, a law professor at Boston College.
“They make a very strong argument that this is just buyer’s
remorse,” Quinn said. “You have to eat your mistakes in the Delaware Chancery
Court. That’s going to work very favorably for Twitter.”
Musk alleged Friday that Twitter has failed to provide
enough information about the number of fake accounts on its service. Twitter
said last month that it was making available to Musk a ″fire hose” of raw data
on hundreds of millions of daily tweets.
The company has said for years in regulatory filings that it
believes about 5% of the accounts on the platform are fake. Musk is also
alleging that Twitter broke the acquisition agreement when it fired two top
managers and laid off a third of its talent-acquisition team.
Twitter’s suit repeatedly emphasizes Musk’s contemplation of
starting a Twitter competitor -- an alternative option he sometimes aired
publicly and sometimes privately to Twitter’s executives and board members.
While the company has said it cooperated in providing the spam bot data he
requested, the lawsuit suggests there was concern that disclosing too much
“highly sensitive information” could expose Twitter to competitive harm if
shared.
The biggest surprise for Quinn was how much evidence Twitter
has -- for instance, communications with Musk about whether to retain or lay
off employees, as well as the billionaire’s own public tweets -- to reject his
arguments for backing out.
“They are marshaling many of Musk’s own tweets to hoist him
on his own petard,” he said.
When Musk offered to buy the company and take it private in
mid-April, the board initially tried to block him by deploying a financial
maneuver that would have made the acquisition prohibitively expensive.
By April 25, though, Twitter had reconsidered the offer,
concluding that selling the company to Musk for $54.20 a share was in the best
interest of shareholders. In a joint press release, Musk pledged to “unlock”
the social media company’s potential by loosening restrictions on speech and
rooting out fake accounts.
But his confidence didn’t last long. Tesla’s stock — Musk’s
primary source of wealth — plummeted amid a broader stock market selloff in
May, and Musk soon seemed less enthusiastic about owning Twitter.
Twitter’s suit calls Musk’s tactics “a model of hypocrisy,”
noting that he had emphasized plans to take Twitter private in order to rid it
of spam accounts. Once the market declined, however, Twitter noted that “Musk
shifted his narrative, suddenly demanding ‘verification’ that spam was not a serious
problem on Twitter’s platform, and claiming a burning need to conduct
‘diligence’ he had expressly forsworn.”
Similarly, the company charges that Musk operated in bad
faith, accusing him of requesting company information in order to accuse
Twitter of providing “misrepresentations” about its business to regulators and
investors.
Musk “has been acting against this deal since the market
started turning, and has breached the merger agreement repeatedly in the
process,” the suit charges. “He has purported to put the deal on ‘hold’ pending
satisfaction of imaginary conditions, breached his financing efforts
obligations in the process, violated his obligations to treat requests for
consent reasonably and to provide information about financing status, violated
his non-disparagement obligation, misused confidential information, and otherwise
failed to employ required efforts to consummate the acquisition.”
Twitter’s lawsuit alleges that the company “has suffered and
will continue to suffer irreparable harm” as a result of Musk’s contractual
breaches that “cast a pall over Twitter and its business.”
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