Twitter Sues Elon Musk!
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Timeline
July 9th - Elon Musk terminates the deal with Twitter.
July 10th - Twitter hires the US law firm Wachtell, Lipton, Rosen & Katz to sue Mr Musk for ending the $44 billion takeover.
July 11th - Twitter’s lawyers accuse Elon Musk of breaching the merger agreement by calling his attempt to walk away from the deal “invalid and wrongful”.
July 11th - Twitter’s share price fell by more than 11% after hearing the news that Elon is terminating the agreement. S&P said that Twitter’s Junk Credit Rating was still under review for a potential downgrade as it could carry many downside risks. They also stated that they do not speculate on the litigation outcome but believe “it would increase uncertainty and reputational risk.”
July 12th - Twitter files a lawsuit to sue Elon Musk in the Delaware chancery court.
Overview
Elon terminated the Twitter deal and accused Twitter of disclosing false and misleading information. Before this, he repeatedly threatened to walk away from the deal and publicly goaded Twitter’s CEO.
The BBC’s North America Technology reporter James Clayton speculated on other potential reasons why Mr Musk might have wanted to pull out of the deal; firstly, it could be due to Twitter’s devaluation, resulting from the fall in market capitalisation of tech stocks. Secondly, it could be due to the deal’s impact on Mr Musk’s other companies (Tesla’s share price had fallen significantly since announcing his interest in Twitter). Lastly, his position on free speech and how Twitter might moderate it also came across as “naïve” due to the international disparity of the law on the topic.
Twitter’s chair, Bret Taylor, responded that the board was “committed to closing the transaction on the price and terms agreed upon with Mr Musk by pursuing legal action to enforce the agreement. He further stated that they are confident of prevailing in the Delaware court of chancery.
The deal terms include a $1 billion termination fee that Musk would have to pay if he was responsible for the deal collapsing. It is also stated that Elon Musk did not oppose a specific performance clause, which states that the deal has to be finished if all other closing conditions are met. Specific performance is an example of a contractual remedy whereby a court could order and compel Mr Musk to buy Twitter.
The Lawsuit
Twitter’s lawyers claim that Elon Musk’s comments on Twitter disclosing false information about fake accounts lack merit. As speculated by James Clayton, they also argued that Elon Musk was trying to back out of the deal rather than “bear the cost” of rout in the tech company’s stock price.
The valuation agreed by Elon Musk was prior to the fall in price - making it comparatively expensive (The price of its rivals has also fallen, for example, Snap Inc has dropped by more than 65%).
Twitter’s lawyers lambasted Musk by stating that he signed a seller-friendly merger agreement, yet he believes that he (unlike every other party subject to the contract laws of Delaware) is free to “change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away”. They also accused Musk of other material contractual breaches, including putting the deal on hold over imaginary conditions, breaching financial obligations and misusing confidential information.
They have asked the court to fast-track a trial for September.
Some analysts (source the Financial Times) have suggested that Elon might be attempting to negotiate the deal at a lower price and that the parties could reach a settlement to avoid costly and protracted litigation. The FT asked Elon Musk for a comment, but he did not immediately return the request.