Twitter has made good on its threat to sue Elon Musk for walking away from a $44 billion deal the two sides inked in April.
“Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests,” the company said in a lawsuit filed today in Delaware Chancery Court. “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.”
“This repudiation follows a long list of material contractual breaches by
Musk that have cast a pall over Twitter and its business. Twitter brings this action
to enjoin Musk from further breaches, to compel Musk to fulfill his legal
obligations, and to compel consummation of the merger upon satisfaction of the few outstanding conditions,” it said.
Read the suit here.
Musk agreed to buy Twitter on April 25 for $54.20 a share in an unsolicited offer that was more than 30% higher than the company’s market price at the time. He began to waffle shortly, however, proclaiming the deal “on hold” in mid-May and mocking the board and management. Twitter has stock fell steadily amid his waffling and a broad market downturn.
Musk focused on what he’s called Twitter’s incomplete accounting of bot, or fake accounts, as invalidating the agreement, which his lawyers officially pronounced dead last Friday. The deal carries a $1 billion breakup fee but Twitter has maintained that’s only in certain circumstances and the billionaire Tesla founder is legally required to complete the deal.
“Musk’s exit strategy is a model of hypocrisy,” the suit says, in part because one of the chief reasons Musk for wanting to buy Twitter was to rid it of spam accounts. “Musk said he needed to take the company private because, according to him, purging spam would otherwise be commercially impractical. In his press release announcing the deal on April 25, 2022, Musk raised a clarion call to “defeat the spam bots.”
“But when the market declined and the fixed-price deal became less attractive, Musk shifted his narrative, suddenly demanding “verification” that spam was not a serious problem on Twitter’s platform, and claiming a burning need to conduct
“diligence” he had expressly forsworn.”
Lawyers for Musk, who owns 9.6% of Twitter, laid out three reasons for reneging on the deal: a purported breach of information-sharing and cooperation covenants; materially inaccurate representations merger agreement that allegedly are reasonably likely to result in a material adverse effect; and purported failure to comply with covenants by terminating certain employees, slowing hiring, and failing to retain key personnel. Twitter denies all three.
Musk amassed a large stake in Twitter last spring and was initially set to join the company’s board. Just before that happened, he shifted to wanting to buy the company entirely, threatening a hostile tender offer if Twitter’s board didn’t agree. The price was good and Twitter had been lagging its social media peers for years so the board ultimately agreed.
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