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Twitter Sues Elon Musk to Complete $44B Purchase
What's happening
Twitter sued billionaire Elon Musk after he told the company he no longer planned to buy the social network for $44 billion.
Why it matters
The lawsuit sets the stage for a legal battle between Twitter and the world's richest man. Musk's attempt to back out of the deal has raised concerns about the social network's future.
What's next
Musk's lawyers are expected to respond to Twitter's lawsuit.
The legal showdown between billionaire Elon Musk and Twitter has officially begun.
On Tuesday, Twitter sued Musk to complete his $44 billion purchase of the social media platform, a move that sets up what will likely be a messy and lengthy court battle. The stakes are high for Twitter as the company deals with fallout from what has been a chaotic relationship with the world's richest man.
In a 62-page lawsuit filed in Delaware's Court of Chancery, Twitter pushed back against several arguments Musk's legal team made when the billionaire told Twitter he no longer planned to buy the company. Twitter accused Musk of breaching the agreement and called his exit strategy a "model of hypocrisy."
The lawsuit notes that Musk's stake in his company Tesla declined by more than $100 billion from its peak in November 2021 and that's the reason why the billionaire wants to back out of the deal.
"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 complaint stated.
Last week, Musk informed Twitter in a letter that he was ending the agreement to buy the social media company. At the time, Twitter said it planned to take legal action to enforce the agreement. Musk, the CEO of Tesla and SpaceX, argued that Twitter breached the agreement by not disclosing details about how it estimates the number of spam accounts on the platform. Twitter estimated in the first quarter that fewer than 5% of Twitter's 229 million daily users were fake or spam-focused but Musk thinks the number is much higher. The billionaire said getting that information was an important part of understanding Twitter's business, which makes most of its money from ads.
Twitter said in the lawsuit that Musk was well aware that there were caveats to the data and the agreement said that the information he requested must be for a "reasonable business purpose" related to completing the deal. Musk made "unreasonable" requests but Twitter still tried to work with him to get him more information. His requests for more data, Twitter alleges in the lawsuit, were "designed to try to tank the deal." The company also had concerns about how Musk, who has suggested building a competitor to Twitter, would use their data if he was able to successfully end the deal. Twitter notes that Musk's ability to end the agreement is very limited but he "wanted an escape."
The New York Times, which reported the lawsuit earlier, said that Twitter told employees in a memo the company is seeking a four-day trial in September. In a motion filed on Tuesday, Twitter asks the Delaware court to speed up the process to protect its shareholders and the company from the potential harm that comes from Musk's efforts to "bully his way" out of the deal. Twitter's stock dropped 11% on Monday to $32.65 per share days after Musk announced he didn't want to purchase the company.
Under the merger agreement, Twitter and Musk have until Oct. 24 to complete the deal. Shareholders would still need to approve the deal in a special meeting.
In its lawsuit, Twitter also alleges that Musk violated the agreement by making public comments Twitter didn't consent to and posting disparaging tweets. In May, Musk tweeted a "misrepresentation" of how many accounts Twitter samples to estimate the number of spam accounts on its platform, according to the lawsuit. Musk also tweeted that Twitter's legal team complained to him about violating a nondisclosure agreement. When Twitter CEO Parag Agrawal tweeted more details about how the company battles spam accounts, Musk replied with a poop emoji.
The lawsuit cites other tweets Musk shared over the weekend after telling Twitter he wanted to back out of the deal. One tweet included a meme with actor Chuck Norris in front of a chess board.
"For Musk, it would seem, Twitter, the interests of its stockholders, the transaction Musk agreed to, and the court process to enforce it all constitute an elaborate joke," the lawsuit said.
Twitter rebutted other arguments Musk is trying to make to end the deal. Musk alleges Twitter violated a part of the agreement that said the company had to seek and obtain consent before straying from "its obligation to conduct its business in the ordinary course," after the social network fired key executives, laid off staff and froze hiring. But Twitter said in the lawsuit that the company did negotiate a right to hire and fire employees at all levels without having to seek Musk's consent. The company, though, did try to be cautious and sought Musk's consent for several key decisions, including about two employee retention programs but he was "non-committal."
The lawsuit also reveals that Twitter was suspicious that Musk was abandoning efforts to finance the deal. When the social network tried to get more information about how Musk was going to pay for the company, the billionaire sent a text to Agrawal and Twitter Chief Financial Officer Ned Segal.
"Your lawyers are using these conversations to cause trouble," Musk said in a text that Twitter cited in the lawsuit. "That needs to stop."
The lawsuit was widely expected. Over the weekend, Twitter called Musk's termination of the deal both "invalid and wrongful."
Bret Taylor, the chair of the social network's board, announced the filing in a tweet, saying the company aimed to hold Musk "accountable to his contractual obligations."
Twitter has filed a lawsuit in the Delaware Court of Chancery to hold Elon Musk accountable to his contractual obligations.
— Bret Taylor (@btaylor) July 12, 2022
Dan Ives, an analyst at Wedbush Securities, said the wrangling between Musk and Twitter had produced "no winners."
"This has been a black eye for Musk and horror movie for Twitter (and its employees) with no winners since the soap opera began in April," he said in a note. Potential outcomes include a settlement, a breakup fee and the deal being enforced. The agreement between Musk and Twitter included a $1 billion termination fee.
Musk's lawyer Mike Ringler didn't respond to a request for comment.
After Twitter filed the lawsuit, Musk tweeted, "Oh the irony lol."
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