Why is Twitter suing Elon Musk and could he be forced to buy the company for $65 billion?
In the latest twist in the Twitter-Elon Musk saga, the company has sued the billionaire Tesla CEO in a bid to force him to complete a $44 billion (over $65 billion) takeover.
Twitter claimed in a lawsuit filed Tuesday in Delaware that Musk’s “weird” actions and “bad faith” caused irreparable harm to the social media platform and sank its share price.
Twitter chairman Bret Taylor also said the lawsuit was filed to hold Musk “responsible for his contractual obligations”.
Legal experts say Twitter has a strong case, but the upcoming court battle could be long and controversial and the outcome uncertain.
So what’s next for Twitter and Mr Musk in the battle for the future of social media companies?
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Why is Twitter suing Elon Musk?
In short, Twitter wants to finalize the deal that both parties have agreed to, and says Musk’s reason for stepping down is just a cover for his cold feet because the takeover no longer makes financial sense to him.
In April, Musk pledged to pay $54.20 per share for Twitter, which agreed to the terms after reversing his initial opposition to the deal.
But both sides have been bracing for a legal battle since the billionaire said on Friday he was backing out of his deal to buy the company.
He said Twitter did not provide him with sufficient information about how many spam accounts there were on the service, among other reasons.
Twitter’s lawsuit asserts: “Mr Musk refuses to honor his obligations to Twitter and its shareholders because the deal he signed no longer serves his personal interests.”
“After putting up a public spectacle to play Twitter, and after proposing and later signing a seller-friendly merger agreement, Musk appears to believe that he – unlike every other party subject to Delaware contract laws – is free to change his mind, corporate trash, disruptive its operations, destroying shareholder value, and leaving,” the lawsuit said.
Mr Musk agreed to pay 38 percent above Twitter’s share price at the time he offered the “take-or-leave” deal, the lawsuit says.
But soon after, the stock market stumbled and Tesla stock, from which most of Musk’s personal fortune came from, lost more than $100 billion in value.
Did Musk answer?
Not formally, although he has tweeted.
After Twitter filed the lawsuit, Musk, who has more than 100 million followers, tweeted, “Oh the irony lol,” without explanation.
Earlier this week, he mocked Twitter over the anticipated lawsuit, suggesting that the court’s discovery process — when both parties must submit evidence — will eventually reveal the internal spam bot data he requested.
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What happened next?
Barring unlikely events from both sides, the case goes to court, and a judge can start making decisions right away.
Twitter has told employees it asked for an “expedited trial” to be heard in September because it was “very important” to get it done quickly.
“Delaware prides itself on being so quick to respond to pressing issues where there is a lot of public or shareholder concern,” Lawrence Cunningham, a law professor and corporate governance expert at George Washington University, said.
But it can still last for weeks or longer, especially if one of the parties tries to stretch it.
Why Delaware?
Twitter filed the lawsuit in the Delaware Court of Chancery, which often handles business disputes between the many companies, including Twitter and Tesla, which are incorporated there.
The court describes itself as “the state’s pre-eminent forum for the determination of disputes involving the internal affairs of thousands of Delaware companies and other business entities”.
The Twitter-Musk case, in that sense, is unusual because it involves businesses suing individuals.
What are they arguing about?
The spam bot question is likely to be a central theme, as it’s the main reason Musk wants to back out of the deal, and “probably a richer argument than people think,” Donna Hitscherich, Columbia University business professor, said.
Twitter claims in its lawsuit that Musk started saying he wanted to buy Twitter to get rid of “crypto spam” which he views as a “grave danger to the user experience”, and took it personally because “cleaning up spam is otherwise commercially impractical.”
But as the stock market moved south, Twitter said: “Mr Musk is changing the narrative, suddenly demanding ‘verification’ that spam is not a serious problem on the Twitter platform, and claiming a burning need to exercise the ‘persistence’ he expressly swore. “
So does the spam issue present a “material breach” of Twitter’s obligations in the deal, as Musk claims, because the company didn’t provide him with enough data to determine how many of the platform’s 229 million accounts were fake?
Or is Mr Musk violating his obligations to follow through on the contracts he signed?
That will be determined by the court.
Can Musk be forced to buy Twitter?
That’s certainly a possible outcome, although some experts say the court may not go that far. That said, the general sentiment is in Twitter’s favor in the lawsuit.
In a case of potential relevance to Musk’s legal battle, a chancellor court last year forced private equity firm Kohlberg & Co. to make a $550 million purchase of DecoPac, a Minnesota-based company that bills itself as the world’s largest supplier of cookies. – Decorating supplies for professional decorators and bakeries.
This case is symbolic of the court’s resolution that is equal — though not uniform — in enforcing contractual obligations on buyers.
Other options include Musk being forced to pay a $1 billion termination fee agreed to by each party if deemed responsible for the failed deal.
Or he may have to pay a larger amount without actually buying the company for $44 billion.
“If he walks out of the deal, there will be losses and that’s not limited to the cost of breaking up,” Professor Hitscherich said.
The Delaware court was “very picky” in interpreting what it considered valid reasons for canceling the deal, Professor Cunningham said.
The gap between what Musk knew about Twitter in April and the current state of the company “should be revolutionary,” and there is little evidence of that, he said.
AP
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