Twitter sues Musk: He can't just 'change his mind, trash the company, walk away'
We're in it for Elon haul
Updated After threatening to do so, Twitter on Tuesday actually sued Elon Musk, claiming the billionaire is breaking the terms of his agreement to buy the biz by trying to flee from the deal.
The drama began in April when it emerged the Tesla mogul had bought a 9.2 percent stake in the website, turned down an opportunity to join its board, and returned with an offer to purchase the thing outright for $44 billion in cash. The Twitter board bristled at the thought, then accepted the deal.
Under the terms of the offer, Musk would buy Twitter at $54.20 a share – said to be a 38 percent premium over the stock price from the day before it became public he owned nearly a tenth of the biz – and if it bailed out of the takeover, he would pay Twitter a $1 billion breakup fee.
While some wondered if this was a joke that was going badly wrong, Musk secured under half of the $44 billion required via loans with banks and help from rich peers, and sold a chunk of his shares in Tesla to in an attempt to funds the other half needed. But as the months flew by, market conditions became turbulent due to rising inflation rates, economic uncertainty, and the ongoing war in Ukraine. As such, tech stocks took a battering. Both Tesla and Twitter's share price dropped.
Even the world's richest man is no match for the economy. Facing a declining net worth, and difficulties bankrolling an increasingly expensive acquisition, Musk decided to back away from the deal and attempted to formally terminate the merger agreement earlier this month.
Publicly, the SpaceX supremo claimed the deal fell apart because Twitter failed to come clean about the number of bot accounts on its platform, and as such, he wasn't going to continue as planned and owe anyone anything.
Twitter insisted less than 5 percent of its monetizable daily active users were fake or spammers. It argued Musk is acting in bad faith by refusing to accept this and in claiming Twitter thus broke the terms of the agreement. The technology mogul waived the need for any business due diligence, and only started picking holes in Twitter's performance and financials after the board called his bluff and accepted the takeover deal.
- Twitter claims Elon Musk bailed from sale with 'invalid and wrongful' reasons
- SpaceX Starship booster in flames after unexpected ignition
- Elon Musk's brother buys Intel's fireworks-replacing drone biz
- Totaled Tesla goes up in flames three weeks after crash
"Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests," the biz said in its lawsuit [PDF] against Musk, filed in the US state of Delaware.
"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."
Actions have consequences. Twitter's lawyers claim Musk has wrought havoc with the company's share price, sending it soaring one day and plummeting the next in an already volatile market by criticizing the outfit and trolling its executives in tweets and at a technology conference. As per the terms of the takeover deal, Musk had promised not to slam Twitter during the acquisition process.
"Since signing the merger agreement, Musk has repeatedly disparaged Twitter and the deal, creating business risk for Twitter and downward pressure on its share price," it was alleged.
The biz also claimed Musk, known for blasting the site's content moderation policies, had shown "disdain" for the company by amassing shares without initially disclosing it, brought up confidential information between him and the company in public, and broken his obligations on the financing side.
Musk wanted an escape. But the merger agreement left him little room
The lawsuit documents, from Twitter's point of view, the sticky financial situation Musk got himself into, seemingly by trying to make a 420 joke with his $54.20 offer, and that this is why Musk wanted to bail out. With Tesla's stock declining in price amid a worsening economic climate in the US and Musk selling off his shares to fund the Twitter acquisition, he dispensed with the banking loan, according to the lawsuit.
By the start of May, "Musk remains personally responsible for $33.5 billion of the approximately $44 billion required to complete the transaction," Twitter claimed in its court paperwork.
"Musk wanted an escape. But the merger agreement left him little room." The biz goes on to claim the tech tycoon thus had to invent a reason why the deal should be forcibly terminated.
Twitter believes Musk should be ordered to stick to the full terms and conditions agreed in the merger deal, including working together to close the acquisition, or more realistically: paying damages for scaring away advertisers and wrecking the share price, and the $1 billion fee for pulling out of the deal. The agreement has an expiration date of October 24.
"Twitter is entitled to specific performance of defendants' obligations under the merger agreement and to secure for Twitter stockholders the benefit of Musk's bargain," the lawsuit stated. "Musk and his entities should be enjoined from further breaches, ordered to comply with their obligations to work toward satisfying the few closing conditions, and ordered to close upon satisfaction of those conditions."
Meanwhile, some staff have reportedly described the internal atmosphere as a "shit show" with seemingly no one in charge in the wake of Elon walking away.
Shortly after the lawsuit was filed, Musk tweeted to his 101 million followers: "Oh the irony lol." ®
Updated to add
A day after filing its lawsuit, Twitter said in an SEC filing it will restructure its business though will not carry out a large layoff. Also, we're told, it asked Musk to approve employee retention programs in June, and did not get his consent.
Twitter in May paused hiring as the market wobbled and Musk's offer was in flow.