Twitter sues Elon Musk after $US44bn bid withdrawal

Twitter’s lawyers say the billionaire apparently believes he is ‘free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away’.

Legal battlelines have been drawn between Elon Musk and his former takeover target Twitter. Picture: Olivier Douliery

Social media giant Twitter has asked a Delaware court to force Elon Musk to honour his $US44bn deal to buy the business.

The suit, filed in Delaware Chancery Court on Tuesday, comes days after Mr Musk moved to terminate the acquisition, saying the company hadn’t provided the necessary data and information he needed to assess the prevalence of fake or spam accounts and was “in material breach of multiple provisions” of the merger agreement.

Twitter had signalled it planned to hold Mr Musk to the agreement.

The company’s lawyers said in a letter disclosed Monday that Mr Musk’s intention to abandon the transaction was “invalid and wrongful,” and that Twitter hasn’t breached any of its obligations.

Lawyers for Twitter said the agreement isn’t terminated, the bank and equity commitments remain in effect, and demanded that Mr Musk’s team comply with its obligations.

“Twitter reserves all contractual, legal, and other rights, including its right to specifically enforce the Musk parties’ obligations under the agreement,” they said.

Twitter has said repeatedly it has co-operated with Mr Musk to consummate the transaction “in accordance with the terms of the merger agreement,” including providing Mr Musk with access to what is known as the fire hose – raw data on tweets being sent every day.

In filing the lawsuit, Twitter requested expedited treatment of the case, which it said would protect its shareholders from “the continuing market risk and operational harm resulting from Musk’s attempt to bully his way out of an airtight merger agreement.”

Expedited cases in the Chancery Court typically play out over the course of a few months rather than months or years.

“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 said in the complaint.

Twitter said that Mr Musk had a change of heart soon as market conditions soured, resulting in his personal wealth declining by more than $US100bn from its November 2021 peak. “Rather than bear the cost of the market downturn, as the merger agreement requires, Musk wants to shift it to Twitter’s stockholders,” the company said in the lawsuit.

Mr Musk’s lawyer argued in a letter filed with regulators that Twitter’s longtime estimate of fake accounts – the company has said for years that fewer than 5 per cent of its monetisable daily active users are spam accounts – appears inaccurate, and therefore could represent a “material adverse effect.”

Under the concept of “material adverse effect,” a buyer must show that a company’s actual business differs dramatically from what they agreed to buy.

It is a high bar that very few buyers who have gotten cold feet have successfully invoked. Mr Musk’s filing didn’t provide evidence to back up his assertion that the estimate was inaccurate or an alternate calculation.

Rather, his lawyer wrote, “Mr Musk has reason to believe” that the true number of spam accounts is “substantially higher” than Twitter’s estimate.

According to corporate law experts, Twitter appears to be on a sounder legal footing than Mr Musk, but the bigger question is whether Twitter could force the billionaire to buy a company he doesn’t want to own.

–The Wall Street Journal