Twitter is suing Elon Musk for $44 billion to enforce ownership

Twitter has sued Elon Musk over his decision to cut the social media company’s $44 billion stake, arguing that its merger deal requires him to abide by the deal.

“Having made a public demonstration of activating Twitter and proposing and signing a merger agreement with a vendor, Musk seems to believe that, unlike all parties subject to Delaware contract law, he is free to change his mind, get rid of of the company, stop its operations”. , destroy shareholder value and walk away,” according to a complaint filed Tuesday in the Delaware Court of Chancery.

Musk proposed a $44 billion cash offer to buy Twitter in April to “unlock” its potential to be “a platform for free speech around the world”. Cautiously, he began buying shares in January, increasing his stake in the company until two months later he owned 5%.

But when his fortune plummeted as Tesla shares plummeted, Musk bristled at the deal. He announced on Twitter on July 8 that he was holding off on buying the company. In the letter, he claimed that Twitter violated the merger agreement and noted “false and misleading representations” about its bot and spam accounts. He also criticized its “deteriorating business and financial outlook” following the departures, layoffs and hiring freeze of key executives.

Twitter responded that it would take legal action to secure the deal at the agreed price and terms.

According to the lawsuit, Twitter can force Musk to protect his property. He pointed to language in the merger agreement that states the company “will be entitled to specified performance or other equitable relief to enforce” the agreement. Specific performance is a remedy in contract law where a court orders a party to comply with the terms of the contract to the extent possible.

“Twitter negotiated for itself an affirmative right to enforce specific compliance with the terms of the settlement, which included the right to compel defendants to settle the settlement and ensured that Musk was personally bound by that provision,” the complaint reads.

In 2021, a Delaware chancellery court refused to allow a private equity firm to back out of a deal to buy cake decorating company DecoPac despite having no debt financing. In that case, the company also took steps to build a case to reject the deal, as Musk allegedly did.

Twitter said in June that it would grant Musk’s request for internal data on spambots and fake accounts after he threatened to back out of the deal. The company said it will offer access to its so-called “fireplace” of data, which contains real-time records of more than 500 million tweets posted daily and information about the accounts and devices the posts are sent from. Musk may have a hard time getting out of the deal arguing that Twitter made significant misstatements it relied on because the company qualified in a securities registry that estimated spam accounted for less than 5% of its monetized daily active users. be very low.

“We use significant judgment in reaching this conclusion, so our estimate of fake or spam accounts may not accurately represent the actual number of such accounts, and the actual number of fake or spam accounts may be higher than we estimate. the letter said. Presentation before the Securities and Exchange Commission.

Twitter is represented by Peter Walsh at Potter Anderson & Corroon, Wilson Sonsini Goodrich & Rosati and merger law heavyweights Wachtell, Lipton, Rosen & Katz. Musk has hired Quinn Emanuel Urquhart & Sullivan, who has successfully defended him in a defamation suit and is representing him in a shareholder case over an attempted takeover of Tesla.

Both parties have agreed to litigate any disputes in the merger agreement before a court, which is known to resolve disputes much more quickly than other courts. Chancery judges specialize in business law and hear cases without a jury. The case is expected to be resolved in a few months.

In a similar case that ended in a settlement, Tiffany sued French luxury goods giant LVMH in a Delaware court. The company claimed the Louis Vuitton owner was deliberately trying to stop and renegotiate the $16 billion purchase. LVMH ended up signing a deal that values ​​Tiffany at $15.8 billion.

Twitter shares closed Monday at $32.65, a far cry from the $54 a share Musk agreed to pay for the $41.4 billion deal. Musk’s involvement in the company is believed to have contributed to its downfall.

Twitter was sued by investors who tried to block the deal, as well as shareholders who tried to force the company to share internal documents about its spam bots and fake accounts.