On Tuesday, Twitter finally made good on its word to sue billionaire Elon Musk to force him to comply with his $44 billion dollar takeover.
Last Friday, the Tesla CEO attempted to back out of his deal to buy Twitter, claiming that the social media company did not give him the information he requested on the number of bot and spam accounts on the platform. He also accused Twitter of misrepresenting the number of bots, which he alleges is higher than they have stated. He also claims that Twitter is in violation of their agreement by not consulting with him before laying off a number of key executives last month.
Twitter board chair Bret Taylor tweeted on Friday night that Twitter plans to pursue legal action to force the SpaceX founder with honoring the deal, and on Tuesday, they took that first step.
Twitter Slams Elon Musk For Mounting A ‘Public Spectacle’ In New Lawsuit
In the court papers filed on Tuesday in the Delaware Court of Chancery, which were shared by The Hollywood Reporter, the company wrote:
“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.”
In January, Musk started discreetly buying up shares in the company to build up his stake until he became Twitter’s largest shareholder earlier this year. After rejecting an offer to have a seat on Twitter’s board of directors in exchange for not buying any more shares, Musk made a deal with Twitter board chair Bret Taylor, where he offered to buy the company for $54.20 per share.
Although Twitter at first tried to adopt a “poison pill” defense to protect the company from Musk’s acquisition, they later created a $44 billion dollar deal for Musk to take over the company. After previously tweeting that the deal was “on hold” due to the number of bot and spam accounts, last Friday, Musk announced in an SEC filing that he wanted to back out of the deal. Tuesday’s lawsuit is Twitter’s attempt to have a court force Elon Musk to go through with the deal.
Can Twitter Actually Force Elon Musk To Buy Twitter If He Doesn’t Want It?
According to the court documents, Twitter hopes to prove to a court that Musk is legally obligated to go through with the deal. They point out language in the agreement itself that says that the company “shall be entitled to specific performance or other equitable remedy to enforce” the merger agreement.
It should be noted that each party had entered a $1 billion dollar “break-up fee” in case one of the parties attempted to back out of the agreement. Instead of the break-up fee, Twitter seems to be going all-in on attempting to have Musk take over the social media company.
“Twitter negotiated for itself a robust right to demand specific performance of the agreement’s terms that encompassed the right to compel defendants to close the deal, and ensured that Musk personally was bound by that provision,” the lawsuit reads.
The Hollywood Reporter noted that, in 2021, the Delaware Chancery Court refused to allow a private equity firm to back out of an agreement to purchase DecoPac, a cake decorating company, despite not having debt financing. It remains to be seen if a judge will rule similarly in this case, now that legal precedent has already been established.
In the upcoming legal battle, Twitter will be represented by Peter Walsh of Potter Anderson & Corroon, Wilson Sonsini Goodrich & Rosati, and merger law heavyweight Wachtell, Lipton, Rosen & Katz. Musk has hired Quinn Emanuel Urquhart & Sullivan, which successfully defended him in a previous defamation suit. They are also representing him in a shareholder case amid his attempt to take his electric car company private.
The Court of Chancery has a reputation for solving conflicts faster than other courts and specializes in business laws and hearing cases without juries. That being said, many legal and financial experts have speculated that this case will be resolved out of court and expect the two sides to reach a settlement in the coming months.
On Monday, Twitter shares closed at $32.65, which is far below the $54.20 per share that Musk had initially agreed to pay back in April. It remains to be seen how Twitter’s share value will fluctuate in the weeks to come.
In addition to his legal battle with Twitter, Elon Musk also seems to have gotten into a feud with former U.S. President Donald Trump. Those interested can read more about that here.