Twitter (TWTR) has made good on its promise to drag Elon Musk into court and potentially force the Tesla CEO to acquire the social media company, despite Musk saying he is killing the deal.
On July 12, Twitter filed a lawsuit in Delaware Chancery Court — the country’s preeminent business dispute forum — asking for one of its chancellors to compel Musk to buy the company, as he promised in his April 25 merger agreement. Under the terms of the accord, Musk agreed to purchase the company’s outstanding common stock at $54.20 per share, roughly $44 billion. As of Tuesday, Twitter was trading around $34 a share.
“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,” Twitter alleges in the breach-of-contract lawsuit.
Twitter is asking the court for “swift” action to force Musk to buy Twitter, noting that the CEO’s tactics pose the danger of irreparable harm against the social media company and its employees.
We have reached out to Twitter and Musk and did not receive an immediate response.
Musk alleges that Twitter breached multiple terms of their agreement by holding back data that would allow him to independently assess the number of fake accounts on the platform — something Musk says is fundamental to its business and financial performance, and needed to facilitate Musk’s financing and financial planning for the transaction.
However, Twitter alleges in its lawsuit that Musk was simply grasping “for an out” as the market and Twitter both began to sink after he agreed to buy the company.
“Musk wanted an escape. But the merger agreement left him little room,” the lawsuit stated.
The agreement incudes a provision for specific performance, a feature that allows the parties to ask for a court to force the deal to close. It also provides for a $1 billion reverse breakup fee that would release Musk from the deal — but only under certain conditions, such as if his debt financing collapsed, or if government regulators blocked the merger.
The agreement in question stems from Musk’s April 4 revelation that he planned to buy Twitter by acquiring all of its outstanding shares. Early on, Musk made clear two central reasons for acquiring the social media company: defeating fake “spam bot” accounts, and promoting more free speech.
His offer of $54.20 per share represented a 38% premium over Twitter’s stock price at market close on April 1, 2022. On May 13, Musk hinted in a Tweet that the deal may be on thin ice.
The deal was temporarily on hold, he said, pending verification of Twitter’s representations that fewer than 5% of monetizable daily active user accounts are fake. Some have speculated that Musk is using Twitter’s fake-account issue as an excuse not to buy a company in a bear market — especially since he should have known about it long before bidding for Twitter.
Musk, meanwhile, has speculated that as many as 20% of Twitter accounts could be bots, but says he can’t verify whether he is right or Twitter is without the right data.
Twitter, according to The Washington Post, shared more than 500 million tweets and associated information with Musk, but the company has said it can’t provide outside parties with privileged internal data, as it could harm user privacy.
Unless the court orders otherwise, Musk has 20 days from being served with Twitter’s complaint to file an answer to its claims.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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