Twitter sued Elon Musk today in Delaware’s Court of Chancery after the multibillionaire announced that he was backing out of his $44 billion deal to buy the company — a deal that, in retrospect, overstated Twitter’s value.
Twitter alleged that Musk, after entering a binding merger agreement, now “refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests.”
Twitter’s suit was expected after Musk announced on July 8 that he no longer plans to buy Twitter, claiming its usership numbers are inflated by Twitter bots and that the company didn’t give him the information he needed to evaluate the deal.
The lawsuit today may be the beginning of long, drawn-out legal battle as Twitter seeks to force Musk to implement his agreement to pay shareholders $54.20 per share for the company, while Musk seeks to get out of the agreement.
Musk will probably lose the lawsuit. Still, the outcome of the lawsuit is uncertain, legal experts say, and could lead to a court forcing Musk to complete the deal or forcing him to pay a $1 billion breakup fee. Or Musk could win the lawsuit, and walk away without paying anything. Or, the result could be in between, such as a settlement, or renegotiation of the purchase price.
Twitter requested a four-day trial this September.
In its court papers filed today, Twitter claimed that Musk’s conduct was in “bad faith” and accused the Tesla CEO of welching on the deal because “the market started turning.”
“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 alleged in its court complaint. “This repudiation follows a long list of material contractual breaches by Musk that have cast a pall over Twitter and its business.”
Twitter claims that Musk’s state reasons for backing out of the deal, such as the prevalence of bots on the service, are mere “pretexts.”
Musk announced plans to buy Twitter for $54.20 per share back in April. But today, Twitter stock was trading at only $34 per share, 37% lower than Musk’s offer.
Twitter blames the decline in part on Musk’s actions, even though other social media companies have also seen their stock prices fall during the same period (although usually by less than 25%).
“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,” Twitter claims.
Twitter sued to “hold Elon Musk accountable to his contractual obligations,” Twitter board chair Bret Taylor tweeted.
“Oh the irony lol,” Musk tweeted in response to Twitter’s filing.
