The lawsuit was filed in order to force Musk to complete his acquisition of the company.
Last week, Mr. Musk said he intended to walk away from the deal. In order to get Mr. Musk to abide by the agreement, they sued him. The court will decide if he is on the hook for the purchase or if he is free to leave.
The company said that Musk refused to honor his obligations due to the fact that the deal he signed no longer served his interests. Musk thinks that he is free to change his mind, trash the company, destroy stockholder value, and walk away from the company.
The issue of disclosure is at the center of the case. To end the deal, Mr. Musk said that he had to give up information about the fake accounts. He said he didn't think the company's public statements that 5 percent of its active users are bots were true. He said that he couldn't get more information about how it accounts for the figures. Mr. Musk has taken aim at the company for not giving warning.
The agreement Mr. Musk signed was binding. If the debt that the billionaire has corralled for the acquisition is in place, there is a performance clause in the contract that allows it to be sued to force the deal through.
In a letter to Mr. Musk, his lawyers said that he had violated his agreement to buy the company. The company said that it uses experts to audit the count and make sure it's accurate.
Sean Edgett told employees in an internal memo on Tuesday that the company had filed a motion for an expedited trial along with the complaint, asking for the case to be heard in September. The memo was obtained by the NYT.
The trial is for four days in September. The deal needs to be done by October 24. If the transaction isn't approved by that time, Mr. Musk will have another six months to complete it.
It is possible that Mr. Musk will buy the company at a discount. The value of many Silicon Valley companies has fallen as a result of Mr. Musk's reluctance to proceed with theTwitter deal.
Both sides could make a deal. If Mr. Musk's financing fell through, the option of paying a $1 billion breakup fee and walking away was available.
It could be a disaster for the company if Mr. Musk succeeds in removing himself from the social networking site. Its share price has fallen below his offer. In the last few months, the business of the social networking site has deteriorated. In a memo to employees, the company's chief executive said that the company hadn't lived up to its goals.
Mr Musk is expected to respond to the lawsuit. 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
There is a chance that the judge assigned to the case will allow Mr. Musk to walk away. If the case goes to trial, the judge will decide if the disclosures were enough to hurt the deal. It is likely to take a long time.
Delaware's Chancery Court has been able to prevent companies from walking away from deals. The court ruled that Tyson had to follow through with the agreement when they tried to back out of an acquisition. Buyers have to pay damages when the court allows them to leave. Damages would be capped at $1 billion.
Legal teams have been assembled by the two companies. William Savitt is a lawyer at Wachtell, Lipton, Moskovitz. The so-called poison pill that was put in place to defend itself against Mr. Musk was one of the legal tactics developed by Wachtell Lipton.
Mr. Savitt has defended companies against the likes of Carl Icahn in the Chancery Court of Delaware. Mr. Musk is unlike other corporate raiders who preceded him.
Alex Spiro, Mr. Musk's personal lawyer, is part of his legal team. Skadden has argued many cases in front of the Delaware court, including the attempt by the luxury giant to break up its deal to acquire Tiffany & Company. About $420 million was shaved off of the purchase price.
The story is evolving. Don't forget to check back for the latest news.
Mike gave reporting.
The fate of the influential social media network will be determined by what may be an epic court battle, involving months of expensive litigation and high-stakes negotiations by elite lawyers on both sides.
The question is if Mr. Musk will be forced to stick with his acquisition or if he will have to pay a 10-figure penalty.
The company is determined to force the deal through due to Mr. Musk attaching few strings to his agreement to buy the company.
Mr. Musk is supported by a group of bankers and lawyers. Instead of engaging in a lengthy public brawl with the world's richest man and his legions of die-hard followers, the company might come under pressure to find a swift and relatively peaceful resolution that preserves the company's independence but leaves it in a tenuous financial position.
According to Mike Ringler, a partner at Skadden, Arps, Slate, Meagher & Flom, Mr. Musk was abandoning the takeover. Mr. Ringler said in his letter that Mr. Musk had not been given details about how it measures inauthentic accounts. He said that Mr. Musk didn't think that the metrics that were publicly disclosed about how many of its users were fake.
The board said it intended to take Mr. Musk to court to force him to complete the acquisition.
The terms of the merger agreement are at the center of the disagreement. Under certain circumstances, he can break off his deal with the social network by paying a $1 billion fee, but only if he loses debt financing. The data that Mr. Musk may need is required by the agreement.
Mr. Musk wants to know how many people use the platform. Lawyers for Mr. Musk have been haggling over the amount of data to give to him.
A huge slide in the valuation of technology companies, includingTesla, the electric vehicle company he runs, which is his main source of wealth, coincides with Mr. Musk's cold feet about theTwitter deal. Mr. Musk did not reply.
Since it uses private information, like users phone numbers and other digital clues about their identities, to determine whether an account is inauthentic, it has refused to publicly detail how it determines if an account is fake. The spokesman declined to say when the lawsuit would be filed.
The outcome is that the court says that Musk can walk away from the company. The court can enforce the deal if he goes through with it. There may be a middle ground where there is a price negotiation.
The completion of a sale to Mr. Musk is important for the social network. As technology companies were enjoying optimistic valuations, it struck its deal with Mr. Musk. Since the deal was announced, the stock price of the company has fallen 30 percent.
Legal experts said that Mr. Musk might be trying to force a lower price on the service.
No one else emerged as a white knight alternative to Mr. Musk during the deal-making.
If the debt financing remains intact, Mr. Musk can be sued by the company and forced to complete or pay for the deal. Tyson Foods tried to back out of an acquisition of the meatpacker IBP in 2001. Tyson had to complete the acquisition.
Legal authority is not the same as reality. It will cost millions of dollars to file a lawsuit and it will take months to resolve the issue.
Settlements have often been the result of disagreements. The $16 billion deal to acquire Tiffany & Company by Louis Vuitton was broken up in 2020 in order to get a lower price.
Charles Elson is a retired professor of corporate governance at the University of Delaware. Money is what it is all about.
The lower the price, the better for Mr. Musk and his backers. The company wants Mr. Musk to keep his offer.
If the deal collapses, it will be the most damaging outcome for the company. The high bar that Mr. Musk would need to meet in order to win the case was not met by other companies. Mr. Musk claims that he's not getting the information he needs to close the deal. He has argued that there was a serious problem with the business of the company.
A buyer has only been successful in persuading a Delaware court that a material change in the target company's business will allow it to exit the deal. That happened in the acquisition of Akorn by the health care company. Akorn's earnings fell after a whistle-blower accused it of skirting regulatory requirements.
In the case of Apollo Global Management's deal combining the chemical companies Huntsman and Hexion in 2008, the chancellor in the Delaware court may allow Mr. Musk to pay damages and walk away. The lawsuits ended in a broken deal.
Chancellors don't want to order a buyer to do something that he doesn't follow through on, a risk that is particularly acute in this deal, given Mr. Musk's habit of breaking legal confines.
If the court makes an order and he doesn't comply, they have to figure out what to do about it, according to Morgan Ricks.
While Mr. Musk usually relies on a small circle of friends to run his businesses, he has brought in a larger legal team to oversee the acquisition of the social networking site. Alex Spiro was his personal lawyer.
Skadden has argued many cases in front of the Delaware court, including the attempt to break off its acquisition of Tiffany.
The deal has been managed by lawyers from two firms. Wilson Sonsini is the longest serving legal counsel at the company. Simpson Thacher has more experience in mergers and acquisitions.
If the acquisition price is changed or the company is broken up it will face more legal problems. Several shareholder lawsuits have already been filed over the acquisition by the social media company. If the company agrees to further reduce its acquisition price, shareholders will be displeased.
Adding legal scrutiny to Mr. Musk is a possibility. The SEC was looking into whether Mr. Musk properly disclosed his stake in the social media company. The regulators secured a $40 million settlement from Musk and his company.
A merger agreement is nothing more than a piece of paper. Ronald Barusch, a retired mergers and acquisitions lawyer who worked for Skadden Arps before it represented Mr. Musk, said that a piece of paper can give you a lawsuit if your buyer doesn't like it. You don't get a deal from a lawsuit. It tends to give you a long headaches. A damaged company.
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