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Saturday, August 13, 2022

Twitter sues Elon Musk to force him to complete acquisition

Musk’s lawyer alleged in Friday’s letter that Twitter (TWTR) is “in material breach of multiple provisions” of the deal, claiming the company has withheld data Musk requested in order to evaluate the number of bots and spam accounts on the platform. Twitter’s legal team hit back in a letter on Monday, calling Musk’s attempted termination “invalid and wrongful,” claiming that Musk himself had violated the agreement and demanding that he follow through with the deal.

In the complaint filed Tuesday, Twitter’s lawyers say they are seeking to prevent Musk from further breaches of the agreement, and to “compel consummation of the merger upon satisfaction of the few outstanding conditions.”

“In April 2022, Elon Musk entered into a binding merger agreement with Twitter, promising to use his best efforts to get the deal done,” the complaint states. “Now, less than three months later, Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests.”

Shortly after news of the suit was filed, Musk tweeted,”Oh the irony lol.” Musk did not immediately respond to a request for comment from CNN.

The deal is now likely headed for a lengthy court battle to determine whether Twitter can force Musk to close the deal and become its owner, or at least get him to pay the $1 billion set out as a breakup fee in the original agreement.

After initially saying he wanted to buy Twitter to eradicate bots, Musk has in recent weeks expressed concerns (without any apparent evidence) that there are more bots on the platform than Twitter has publicly reported.

Some analysts, however, have suggested that Musk simply wants an excuse to get out of a deal that now seems overpriced following the downturn in Twitter shares and the overall tech market. Tesla (TSLA) shares, which Musk is relying on in part to finance the deal, have also declined sharply since he agreed to the acquisition deal.

Twitter said in its Tuesday complaint that, “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.”

It later adds that Musk’s attempts to exit the deal and his “disparagement of Twitter and its personnel … expose Twitter to adverse effects on its business operations, employees and stock price.”

Indeed, Twitter’s stock, which regained around 4% on Tuesday after falling sharply on Monday, is trading 34% below its price the day Twitter and Musk struck the deal, and 37% below Musk’s offer price, suggesting deep skepticism about the deal getting done, at least at its original price. The sale price in the agreement, $54.20 per outstanding share, represented a 38% premium over the stock price the day before Musk revealed his stake in the company.

Very little about the process of Musk and Twitter pursuing a deal has been typical by the standards of corporate mergers and acquisitions, and Tuesday’s complaint seeking to enforce the agreement — which is filled with references to tweets, memes and one nod to the poop emoji — highlights just how bizarre it has been.

The document references, for example, Musk’s tweets in the days leading up to the agreement, in which he appeared to hint at launching a hostile takeover through a tender offer by tweeting “Love Me Tender” and a blank followed by “is the Night.” It also pointed to a Monday tweet by Musk that included images of Musk laughing and suggesting that if Twitter sued him to enforce the deal, it would have to reveal the data on bots he’d been asking for in court.

“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 complaint states.

In the filing, Twitter took issue with several of the ways in which Musk has accused the company of violating the acquisition agreement, including the claim in his Friday letter that Twitter breached the deal by letting go of two senior executives last month. Twitter claims Musk wanted the merger agreement to state the company could not hire or fire employees at or above the level of vice president, or “above a presumptive violation of the ordinary course covenant,” without Musk’s consent. “Twitter successfully struck that provision before signing,” the complaint states.

In conjunction with the complaint, Twitter filed a motion to expedite proceedings in the case, requesting a four-day trial on the dispute to be completed in September.

“Expedition is essential to permit Twitter to secure the benefit of its bargain, to address Musk’s continuing breaches, and to protect Twitter and its stockholders from the continuing market risk and operational harm resulting from Musk’s attempt to bully his way out of an airtight merger agreement,” the filing states.

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