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 filed a complaint and wrote:
Musk, who has staged a large-scale public event to launch Twitter, proposed and signed a seller friendly merger agreement and seems to believe that, unlike all other parties subject to Delaware law, he is free to alter his mind and destroy the company’s operations and stockholder value and walk off. After a string of breaches in material contracts by Musk, this repudiation is a clear sign that Musk has ceased to be a party to the company’s business.
Musk ended the mega-deal July 8 by claiming that Twitter wasn’t being truthful about how many bots it had and the fake accounts they were creating. He claimed that Twitter withheld information necessary to accurately value his company. Twitter claims that this excuse is a “pretext”, and Musk has lost his cool. Twitter claimed that Musk had signed a binding merger agreement but is refusing to fulfill his obligations to Twitter stockholders and Twitter because the deal does not serve his personal interests .”
We explain bots’ importance and why they are important here. Musk sent this tweet on Tuesday in apparent response to the lawsuit:
— Elon Musk (@elonmusk) July 11, 2022
Twitter stated that it aims to prevent Musk from breaking the agreement again and to force him to complete the merger “upon satisfying the few remaining conditions .”
It is not clear what these conditions could entail. In my Sunday post, I discussed the legal strategies available to Twitter if they sue. This quote was from The New York Times , which stated Twitter would seem to have the winning hand but Musk would undoubtedly prove to be an wily opponent.
…Mr. Musk is known for his impulsiveness, brinkmanship and support from a number of lawyers and top bankers. Twitter may be under pressure to reach a quick and peaceful solution. This could save the company’s autonomy, but it will leave the financial situation fragile.
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 show that the alleged omission was an “unexpected fundamental, permanent” adverse development. This is similar to blowing holes in the transaction, according to Larry Hamermesh of the University of Pennsylvania.
This is a new story. We’ll keep you updated as more developments occur, since it’s bound to get even better.