Twitter is suing Elon Musk over his decision to terminate an agreed $44bn (£37bn) takeover of the company. An already acrimonious relationship descended into outright hostility on Tuesday when it lodged a lawsuit in the US state of Delaware, the company’s corporate base, accusing Musk of trashing the company and walking away. Here is a breakdown of what the lawsuit says.
Twitter says Musk’s conduct is ‘a model of bad faith’
The 62-page legal document launches straight into a savage assessment of how the world’s richest man has behaved throughout the saga. It says Musk entered into a binding agreement in April this year and is pulling out because “the deal he signed no longer serves his personal interests”.
The opening salvo adds: “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.”
The rest of the document is littered with accusations of unreasonable demands and inconsistent behaviour that Twitter describes as “a model of bad faith”. It also accuses Musk of treating the process as an “elaborate joke”. The lack of regard for Musk is so strong throughout you wonder how Twitter staff will react to the fact that the lawsuit is actually trying to force Musk to buy the company.
As the lawsuit states: “Employee attrition, meanwhile, has been on the upswing since the signing of the merger agreement.”
Twitter wants Musk to complete the deal
The document states that Twitter is “entitled to specific performance” of Musk’s obligations under the agreement, a legal term that means requiring the Tesla CEO to buy the company for the $54.20 a share that he had signed up for (so long as the debt lined up to help finance continues to be in place). “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.”
Twitter dismisses Musk’s reasons for walking away
Broadly, Musk has given three reasons for cancelling the deal: that Twitter had breached the agreement by failing to provide enough information on spam accounts; that Twitter has misrepresented the number of spam accounts in its disclosures to the US financial watchdog; and that the company breached the agreement by failing to consult Musk when firing senior employees recently.
Those are all rebutted at length in the document. Twitter says it has “bent over backwards to provide Musk the information he has requested” and devotes significant chunks of the lawsuit to the back-and-forth over information relating to spam accounts (machine-operated accounts designed to manipulate users or disrupt their interactions on the platform). It added: “From the outset, defendants’ information requests were designed to try to tank the deal.”
On the alleged misrepresentation of spam accounts, Twitter says Musk has failed to show any evidence that spam accounts represent more than 5% of its 229 million-strong user base. It quotes Musk’s lawyers stating that their client “strongly believes” Twitter’s spam estimates are wrong. The company replies that believing something to be the case does not represent proof and even less so a trigger of the “company material adverse effect” clause that could allow Musk to scupper the deal. Twitter says to trigger the clause would require “clearing an extraordinarily high bar that is nowhere in sight here”.
On the accusation of firing employees without properly consulting Musk, Twitter says the Tesla CEO’s lawyers were notified of two executives being let go and raised no objection. It adds that Musk himself had told Twitter staff at a Q&A that there would have to be “some rationalisation” of headcount at the company.
Twitter alleges multiple breaches of the agreement by Musk
The lawsuit hits back at Musk with claims that he broke the agreement in multiple ways. Much evidence is presented of Musk breaching a pledge in the deal not to send tweets that “disparage” the company or its representatives. Several examples of disparaging tweets are cited, including the sending of a poo emoji to Twitter’s CEO, Parag Agrawal.
💩
— Elon Musk (@elonmusk) May 16, 2022
The lawsuit adds that Musk breached the agreement by, for example: failing to use his “reasonable” best efforts to complete the merger and withholding consent from operational decisions such as a new pay scheme for key staff. As result, Twitter claims, Musk cannot terminate the deal anyway.
“The merger agreement provides that if defendants are in material breach of their own obligations under the merger agreement, they cannot exercise any termination right they might otherwise have.”
The lawsuit also contains evidence of tension between Agrawal and Musk over whether the Tesla boss is fulfilling his side of the agreement. At one point when Twitter formally asked for progress from Musk on the financing of the deal, he sent a text to Agrawal and Twitter’s chief financial officer: “Your lawyers are using these conversations to cause trouble,” before adding, “that needs to stop”.
Twitter believes a stock slump was the reason he walked
While dismissing Musk’s case for terminating the deal, the lawsuit claims that a decline in the stock market and Tesla shares – a key source of financing for the deal – was the main reason why the multibillionaire went cold on it. “Musk has been acting against this deal since the market started turning, and has breached the merger agreement repeatedly in the process.”
What next?
Twitter has asked a Delaware court to schedule a four-day trial in mid-September for its case, with the hope of a quick conclusion in time for the deadline of completing the deal on 24 October. A legal expert says the strength of Twitter’s case would help the company should it decide to settle with Musk. “The facts they marshal in their complaint give them maximum leverage to negotiate should they so wish,” says Brian Quinn, an associate professor at Boston College law school.