SAN FRANCISCO – Twitter on Tuesday sued Elon Musk for forcing the billionaire to complete his $ 44 billion acquisition of the company, setting the stage for a long legal battle over the fate of the social media service.
Mr. Musk agreed in April to buy Twitter, but stated last week that he intended to abandon the deal. To push Mr. Musk in fulfilling the acquisition agreement, Twitter sued him in Delaware Chancery Court. The court will determine whether it remains pending the purchase or whether Twitter breached its obligation to provide Mr. Musk the data he requested, giving him the right to leave.
“Musk refuses to fulfill his obligations to Twitter and its shareholders because the agreement he signed no longer serves his personal interests,” the company said in the lawsuit. “Apparently, Musk believes that he, unlike all other parties subject to Delaware contract law, is free to change his mind, dirty the company, disrupt its operations, destroy shareholder value, and leave.” .
At the heart of the case is the issue of disclosure. To terminate the agreement, Mr. Musk claimed that Twitter was reluctant to deliver information about spam bots, also known as fake accounts, on the platform. He repeatedly said he did not believe the company’s public statements that approximately 5 percent of its active users are robots. Twitter intentionally misled the public, he said, and obstructed his efforts to learn more about how he explains the figures. Mr. Musk has also pointed to Twitter for failing to warn before recently firing two key executives.
But Mr. Musk signed a legally binding agreement with Twitter. And in that contract, Twitter included a specific performance clause that allows it to sue to force the deal, as long as the debt the billionaire has closed for the acquisition is in effect.
In a letter to Mr. Musk on Sunday, Twitter attorneys said his decision to terminate the deal was “invalid and unlawful” and that Mr. Musk “consciously, intentionally, voluntarily and materially breached” his agreement to buy the company. The company has said it relies on its figures on spam accounts and uses spam experts to audit the count and ensure its accuracy.
In its lawsuit, Twitter argued that Mr. Musk, who also runs carmaker Tesla, wanted to get out of the deal because of stock market changes that affected his wealth. (Tesla shares have fallen in recent months.) Twitter said the billionaire used his complaints about robots as a pretext to get out of the deal.
Mr. Musk also broke an agreement not to publicly insult Twitter executives and “covertly abandoned” his efforts to secure debt financing for the deal, according to the lawsuit. In doing so, the social media company said it breached its obligations to use “the best reasonable efforts” to reach an agreement.
“Musk wanted to escape,” the company said. “But the merger deal left him little room.”
Mr. Musk did not immediately respond to a request for comment.
Sean Edgett, Twitter’s attorney general, informed employees of the lawsuit in an internal note Tuesday and said the company had “filed a motion for an expedited trial along with the complaint, requesting that the case be to be heard in September, as it is of great importance, so that this matter may be settled quickly. ”The New York Times obtained the note.
Twitter is looking for a four-day trial this September. The agreement has a deadline of October 24 to end. If the transaction is still pending regulatory approval at that time, Mr. Musk and Twitter would have six more months to close it.
However, the threat of Mr. Leaving Musk could bring Twitter to the negotiating table, allowing the billionaire to buy the company at a discount. Both parties could also be established. Or they could pay a $ 1 billion breakout fee and leave, an option allowed only in certain circumstances, as if Mr. Musk failed.
If Mr. Musk successfully disengages from Twitter, it could be disastrous for the company. Its shares have fallen more than 35 percent below its offer of $ 54.20 per share. The Twitter business has also deteriorated in recent months. In May, Parag Agrawal, chief executive of Twitter, said in a note to employees that the company had failed to meet its business and financial goals.
Now that Twitter has sued, it is expected that Mr. Musk and his lawyers respond. While the timeline beyond that depends on many factors, the company and Mr. Musk will likely be summoned to a hearing in Delaware and will go through the discovery process, with both parties unearthing facts they believe are relevant to the case.
The case can then go to trial, although there is a possibility that the judge assigned to the case will dismiss Mr. Musk to leave. If the lawsuit goes to trial, the judge will decide whether the Twitter revelations were insufficient and caused material damage to the settlement.
In the past, the Delaware cancellation court has prevented companies from trying to get away from the agreements. In 2001, for example, when Tyson Foods attempted to withdraw from the acquisition of the IBP meat packer, the court ruled that Tyson had to comply with the agreement. In situations where the court has allowed buyers to leave, it has forced them to pay damages. According to most readings of the Twitter contract with Mr. Musk, the damage would be limited to $ 1 billion.
Twitter and Mr. Musk has assembled legal teams to do just that. Leading Twitter efforts in Delaware is William Savitt, a lawyer for Wachtell, Lipton, Rosen & Katz. Wachtell Lipton is famous, among other things, for developing legal tactics to protect companies from hostile buyers, such as the so-called poison pill that Twitter originally launched to defend itself from Mr. Musk.
Mr. Savitt has experience before the Delaware Chancellery Court and previously defended companies against such as Carl Icahn and Pershing Square, the investment firm run by billionaire William Ackman. But Mr. Musk is unlike any other corporate assailant who preceded him, making him an especially complex opponent.
The legal team of Mr. Musk includes his personal attorney, Alex Spiro, as well as lawyers for Skadden, Arps, Slate, Meagher and Flom. Skadden is a leading corporate law firm with extensive experience arguing cases in Delaware court, including the attempt by luxury giant LVMH Moët Hennessy Louis Vuitton to break its $ 16 billion deal to acquire Tiffany & Company. Skadden’s customer, LVMH, eventually reduced about $ 420 million from its purchase price.
This is a developing story. Check for updates again.
Mike Isaac contributed to the report.