Twitter Sues Musk After He Tries Backing Out of $44 Billion Deal

The question of whether Elon Musk must buy Twitter, as he agreed to do in April, is
headed to a court in Delaware.

SAN FRANCISCO — Twitter sued Elon Musk on Tuesday to force the billionaire to
complete his $44 billion acquisition of the company, setting the stage for a prolonged
legal battle over the fate of the social media service.

Mr. Musk agreed in April to buy Twitter but declared last week that he intended to
walk away from the deal. To push Mr. Musk to abide by the acquisition agreement,
Twitter sued him in Chancery Court in Delaware. The court will determine whether he
remains on the hook for the purchase or whether Twitter violated its obligation to
provide Mr. Musk with data he requested, entitling him to walk away.

“Musk refuses to honor his obligations to Twitter and its stockholders because the
deal he signed no longer serves his personal interests,” the company said in the suit.
“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.”

At the heart of the case is the issue of disclosure. To terminate the deal, Mr. Musk
claimed that Twitter balked at handing over information about spam bots, also
known as fake accounts, on the platform. He repeatedly said he did not believe the
company’s public statements that roughly 5 percent of its active users are bots.
Twitter intentionally misled the public, he said, and obstructed his efforts to get more
information about how it accounts for the figures. Mr. Musk has also taken aim at
Twitter for not giving warning before recently firing two key executives.

But Mr. Musk signed a legally binding agreement with Twitter. And in that contract,
Twitter included a specific performance clause that allows it to sue to force the deal
through, so long as the debt that the billionaire has corralled for the acquisition is in
place.
In a letter to Mr. Musk’s lawyers on Sunday, Twitter’s lawyers said that his move to
terminate the deal was “invalid and wrongful” and that Mr. Musk “knowingly,
intentionally, willfully and materially breached” his agreement to buy the firm. The
company has said that it is confident in its figures about spam accounts, and that it
uses experts in spam to audit the count and ensure its accuracy.

In its suit, Twitter argued that Mr. Musk, who also leads the automaker Tesla, wanted
to exit the deal because of changes in the stock market that affected his wealth.
(Tesla’s stock has fallen in recent months.) Twitter said the billionaire used his
complaints about bots as a pretext to wriggle out of the agreement.

Mr. Musk also broke an agreement not to publicly insult Twitter executives and he
“covertly abandoned” his efforts to secure debt funding for the deal, the lawsuit said.
In doing so, the social media company said he breached his obligations to use
“reasonable best efforts” to get a deal done.

“Musk wanted an escape,” the company said. “But the merger agreement left him
little room.”

Mr. Musk didn’t respond to a request for comment.

Sean Edgett, Twitter’s general counsel, informed employees of the suit in an internal
memo on Tuesday and said the company had also “filed a motion for an expedited
trial alongside the complaint, asking for the case to be heard in September, as it is
critically important for this matter to be resolved quickly.”

Twitter’s chief executive, Parag Agrawal, wrote in response, “We took this
opportunity to tell our story and defend our company, our people and our
stockholders,” adding: “We plan to hold the buyer fully accountable to fulfill his
contractual obligations. We will prove our position in court, and we believe we will
prevail.” The New York Times obtained both memos.
Twitter is seeking a four-day trial this September. The deal has a deadline of Oct. 24
to be completed. Should the transaction still be awaiting regulatory approval at that
time, Mr. Musk and Twitter would have another six months to close it.

Brian J.M. Quinn, a professor at Boston College Law School, said Twitter’s legal
arguments were strong. He noted that Mr. Musk’s tweets were peppered throughout
the lawsuit, including one that the billionaire sent before signing the deal that
showed he was aware of spam on Twitter. Mr. Musk had tweeted, “we will defeat the
spam bots or die trying.”

“His lawyers are going to be very unhappy with the fact that he tweets,” Mr. Quinn
said of Mr. Musk. “All the tweets that they can find, they are using against him.”

Still, Mr. Musk’s threat of walking away could bring Twitter back to the negotiating
table, allowing the billionaire to buy the company at a discount. The two sides could
also settle with Mr. Musk paying damages to Twitter. Or he could pay a $1 billion
breakup fee and walk away, an option allowed only under certain circumstances,
such as if Mr. Musk’s financing fell throu it could be disastrous for the company. Its
stock has fallen more than 35 percent below his offer of $54.20 per share. Twitter’s
business has also deteriorated in recent months. In May, Mr. Agrawal said in a memo
to employees that the company had not lived up to its business and financial goals.

Now that Twitter has sued, Mr. Musk and his lawyers are expected to respond. While
the timeline beyond then depends on many factors, the company and Mr. Musk will
most likely be called to a hearing in Delaware and go through the discovery process,
with the two sides digging up facts they believe are relevant to the case.

The case may then move to a trial, though there is a chance the judge assigned to the
case will dismiss Mr. Musk’s efforts to walk away. If the suit proceeds to trial, the
judge will decide whether Twitter’s disclosures were insufficient and constituted a
material harm to the deal.
In the past, Delaware’s Chancery Court has prevented companies from trying to walk
away from deals. In 2001, for example, when Tyson Foods tried to back out of an
acquisition of the meatpacker IBP, the court ruled that Tyson had to follow through
with the agreement. In situations where the court has allowed buyers to exit, it has
required them to pay damages. By most readings of Twitter’s contract with Mr. Musk,
damages would be capped at $1 billion.

Twitter and Mr. Musk have assembled legal teams to duke it out. Leading Twitter’s
efforts in Delaware is William Savitt, a lawyer at Wachtell, Lipton, Rosen & Katz.
Wachtell Lipton is famous for, among other things, developing legal tactics to protect
companies from hostile buyers, like the so-called poison pill that Twitter originally put
in place to defend itself against Mr. Musk.

Mr. Savitt has experience before Delaware’s Chancery Court and previously defended
companies against the likes of Carl Icahn and Pershing Square, the investment firm
run by the billionaire William Ackman. But Mr. Musk is unlike any other corporate
raider who preceded him, making him a particularly complex opponent.

Mr. Musk’s legal team includes his personal lawyer, Alex Spiro, plus his partners at
the law firm Quinn Emanuel and lawyers from Skadden, Arps, Slate, Meagher & Flom.
Skadden is a go-to corporate law firm, with ample experience arguing cases in front
of the Delaware court, including the attempt by the luxury giant LVMH Moët
Hennessy Louis Vuitton to break up its $16 billion deal to acquire Tiffany & Company.
Skadden’s client, LVMH, ultimately shaved about $420 million off its purchase price.
In April, almost every adults and young adults over the world wondered if I – Elon Musk, a billionaire
– must buy Twitter. This question was linked to a court in Delaware, where I was force to complete
my $44 billion acquisition of the company, and it set the stage for a prolonged legal battle over the
fate of the social media service. From my perspective, at the heart of the case is the issue of
disclosure. To terminate the deal, I claimed that Twitter balked at handing over information about
spam bots, also known as fake accounts, on the platform. I had repeatedly said I did not believe the
company’s public statements that roughly 5 percent of its active users are bots. For example, Twitter
intentionally misled the public, and obstructed my efforts to get more information about how it

accounts for the figures. But, I signed a legally binding agreement with Twitter. And in that contract,
Twitter included a specific performance clause that allows it to sue to force the deal through, so long
as the debt that I has corralled for the acquisition was in place (which the contract I thought was
definitely worthless after almost every Twitter’s actions).

What the most hilarious is that the Twitter’s lawyers and also its suit confirmed that I was the one
who “knowingly, intentionally, willfully and materially breached” my agreement to buy the firm. It
seemed that they were over 95% confident with their given figures. Also they used my stock market
and some changes as a convincing instance. And my Tesla bot, too.

As I remember, Twitter is seeking a four-day trial this September and the deal has a deadline of Oct.
24 to be completed. Should the transaction still be awaiting regulatory approval at that time, I and
Twitter would have another six months to close it. However, Twitter at the same time is facing with a
huge fiscal problem. Twitter’s business has also deteriorated in recent months. Finally in May, Mr.
Agrawal said in a memo to employees that this company had not lived up to its business and financial
goals.

Now, I and my lawyers are expected to respond Twitter’s suit. While the timeline beyond then
depends on many factors, I and the company will most likely be called to a hearing in Delaware and
go through the discovery process, with the two sides digging up facts we believe are relevant to the
case.

By most readings of Twitter’s contract with me, damages would be capped at $1 billion. Both sides
have assembled legal teams to duke it out. My legal team includes my personal lawyer, Alex Spiro,
plus some of my partners at the law firm Quinn Emanuel and lawyers from Skadden, Arps, Slate,
Meagher & Flom. Skadden is a go-to corporate law firm, with ample experience arguing cases in front
of the Delaware court, including the attempt by the luxury giant LVMH Moët Hennessy Louis Vuitton
to break up its $16 billion deal to acquire Tiffany & Company. Skadden’s client, LVMH, ultimately
shaved about $420 million off its purchase price. With my legal team’s wealth of experience, I do
believe I and my company can take advantage of the deals.