SAN FRANCISCO — Twitter sues Elon Musk on Tuesday to force the billionaire to complete its $44 billion acquisition of the company, paving the way for a protracted legal battle over the fate of the social media service.
Mr. Musk agreed to buy Twitter in April, but stated last week that he meant to walk away from the deal† To get Mr Musk to abide by the acquisition agreement, Twitter sued him in Chancery Court in Delaware† The court will determine whether he remains on the hook for the purchase or whether Twitter has breached its obligation to provide Mr. Musk with the details he requested, giving him the right to walk away.
“Musk is refusing to honor his obligations to Twitter and its shareholders because the deal he signed no longer serves his personal interests,” the company said in the lawsuit. “Musk apparently believes that—unlike any other party subject to Delaware contract law—he is free to change his mind, destroy the company, disrupt its operations, destroy shareholder value, and walk away.”
The crux of the matter is the issue of disclosure. To end the deal, Mr Musk claimed Twitter was hesitant to hand over information about… spam bots, also known as fake accounts, on the platform. He repeatedly said he did not believe the company’s public statements that about 5 percent of active users are bots. Twitter has deliberately misled the public, he said, hindering its efforts to get more information about how it explains the numbers. Mr Musk has also taken to Twitter for failing to warn before firing two key figures.
But Mr. Musk signed a legally binding agreement with Twitter. And in that contract, Twitter has included a specific performance clause that will allow it to push through the deal, as long as the debt incurred by the billionaire for the acquisition is in place.
In a letter to Mr. Musk’s attorneys on Sunday, Twitter’s attorneys said his attempt to end the deal was “void and unlawful” and that Mr. Musk “knew, intentionally, intentionally and materially” his agreement to buy the company, has violated. The company has said it is confident in its spam account numbers and uses spam experts to monitor the count and ensure its accuracy.
In his lawsuit, Twitter argued that Mr. Musk, who also heads the automaker Tesla, wanted to end the deal due to changes in the stock market affecting his net worth. (Tesla’s shares have fallen in recent months.) Twitter said the billionaire was using his complaints about bots as a pretext to squeeze out of the deal.
Mr. Musk also broke an agreement not to publicly insult Twitter executives and he “surreptitiously relinquished” his efforts to secure debt financing for the deal, the lawsuit said. In doing so, the social media company said it had breached its obligations to make “reasonable efforts” to close a deal.
“Musk wanted to escape,” the company said. “But the merger agreement left him little room.”
Mr. Musk did not immediately respond to a request for comment.
Sean Edgett, Twitter’s general counsel, informed employees in an internal memo about the lawsuit Tuesday, saying the company had “applied for an expedited trial in addition to the complaint, requesting that the matter be heard in September.” because it is crucial. to resolve this issue quickly.” The New York Times got hold of the memo.
Twitter is looking for a four-day trial in September. The deal has a deadline of October 24 to close. Should the transaction still await regulatory approval at that time, Mr. Musk and Twitter have six months to complete the transaction.
Still, Musk’s threat to walk away could bring Twitter back to the negotiating table, allowing the billionaire to buy the company at a discount. The two sides could also settle. Or they can pay a $1 billion severance payment and walk away, an option allowed only under certain circumstances, such as if Mr. Musk’s financing falls through.
If Mr. Musk successfully breaks away from Twitter, it could be: disastrous for the company† The stock is down more than 35 percent below its bid of $54.20 a share. Twitter’s business has also deteriorated in recent months. In May, Parag AgrawalTwitter’s CEO said in a memo to employees that the company had failed to meet its business and financial goals.
Now that Twitter has filed a suit, Mr. Musk and his lawyers are expected to respond. While the timeline after that will depend on many factors, the company and Mr. Musk will most likely be summoned to a hearing in Delaware and go through the discovery process, with the two sides unearthing facts they believe are relevant to the case.
The case could then go to trial, although there is a chance the judge assigned to the case will reject Mr Musk’s attempts to run away. If the lawsuit goes through, the judge will rule whether Twitter’s disclosures were insufficient and materialized damage to the deal.
In the past, Delaware’s Chancery Court has prevented companies from trying to walk away from deals. For example, when Tyson Foods tried to refrain from acquiring the meat packer IBP in 2001, the court ruled that Tyson had to abide by the agreement. In situations where the court has allowed buyers to leave, it has required them to pay damages. According to most readings of Twitter’s contract with Mr. Musk, the damage would be limited to $1 billion.
Twitter and Mr. Musk have assembled legal teams to fight it out. Twitter’s leading work in Delaware is William Savitt, an attorney at Wachtell, Lipton, Rosen & Katz. Wachtell Lipton is known, among other things, for developing legal tactics to protect companies from hostile buyers, such as the so-called poison pill who originally set up Twitter to defend itself against Mr. musk.
Mr. Savitt has experience before the Delaware’s Chancery Court and has previously defended companies against the likes of Carl Icahn and Pershing Square, the investment firm run by billionaire William Ackman. But Mr. Musk is… unlike all the other corporate raiders before himmaking him a particularly complex opponent.
Mr. Musk’s legal team includes his personal attorney, Alex Spiro, as well as attorneys from Skadden, Arps, Slate, Meagher & Flom. Skadden is a renowned corporate law firm, with extensive experience in pleading cases in the Delaware court, including the attempt by luxury giant LVMH Moët Hennessy Louis Vuitton to break his $16 billion deal to acquire Tiffany & Company. Skadden’s customer, LVMH, ultimately shaved about $420 million off the purchase price.
This is a story in development. Come back for updates.
Mike Isaac reporting contributed.
