Well, it finally happened, as we predicted it would—social media giant Twitter filed suit Tuesday against Elon Musk in the Delaware Court of Chancery after the billionaire walked away from his $44 billion deal to buy the company. They wrote in a complaint:
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 repudiation comes after a string of serious contractual violations by Musk, which have cast doubt on Twitter’s business and operations.
Musk ended the massive deal on July 8 by claiming that Twitter wasn’t being truthful about how many bots it had and the fake accounts they were creating among its users. He claimed that Twitter withheld information necessary to properly value his company. Twitter argues that the excuse is simply a “pretext” and that Musk got cold feet. The company wrote that Musk signed a binding merger agreement, but now “refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests.”
Here’s a detailed explanation of bots and how they are important. Musk sent this tweet on Tuesday to respond to the lawsuit.
— Elon Musk (@elonmusk) July 11, 2022
Twitter said it seeks to stop Musk from further breaches of the agreement and compel him to consummate the merger “upon satisfaction of the few outstanding conditions.”
We don’t know what these conditions could mean. In my Sunday column, I discussed the legal options that could be used if Twitter sued. The New York Times quote that suggested that Twitter might appear to win was used by me. However, Musk could be seen as a clever opponent.
…Mr. Musk is known for his impulsiveness, brinkmanship, and is supported by top lawyers and bankers. Rather than engaging in a protracted public brawl with the world’s richest man and his legions of die-hard followers, Twitter might come under pressure to find a swift and relatively peaceful resolution — one that could preserve the company’s independence but leave it in a tenuous financial position.
According to Fortune, the entire affair will come down to three words: “Material Adverse Effect.” In other words, Musk must prove that Twitter’s refusal, in his view, to supply adequate information about fake accounts constitutes an adverse effect that didn’t enter into his initial calculations in offering to buy the company. Per Fortune:
To escape the deal, Musk must prove the alleged omission amounts to an “unexpected, fundamental, permanent” negative development—akin to blowing a hole in the transaction that can’t be fixed, said Larry Hamermesh, a University of Pennsylvania law professor.
This is a breaking story, and we’ll continue to update you as developments arise, because it’s sure to get even more interesting.