Twitter Inc. won a motion for an expedited trial in its lawsuit against billionaire Elon Musk as the company attempts to hold him accountable for his agreement to purchase the social media site for nearly $44 billion.
Chancellor Kathaleen St. Jude McCormick, the head judge of Delaware’s Court of Chancery, set an October date for the trial to begin, saying that “delay threatens irreparable harm.
The longer the delay, the greater the risk,” she said Tuesday.
Twitter had asked for an expedited trial in September, while Musk’s team called for waiting until early next year because of the complexity of the case. McCormick said Musk’s team underestimated the Delaware court’s ability to “quickly process complex litigation.”
Here’s what’s at stake in the case:
Background
This week’s hearing is the latest back-and-forth between Musk and Twitter over the SpaceX CEO’s proposal to purchase the company.
Musk’s flirtation with buying Twitter appeared to begin in late March. That’s when Twitter has said he contacted members of its board — including co-founder Jack Dorsey — and told them he was buying up shares of the company and interested in either joining the board, taking Twitter private or starting a competitor. Then, on April 4, he revealed in a regulatory filing that he had become the company’s largest shareholder after acquiring a 9% stake worth about $3 billion.
At first, Twitter offered Musk a seat on its board. But six days later, Twitter CEO Parag Agrawal tweeted that Musk would not be joining the board after all. His bid to buy the company came together quickly after that.
Musk had agreed to buy Twitter for $54.20 per share, inserting a “420” marijuana reference into his offer price. He sold roughly $8.5 billion worth of shares in Tesla to help fund the purchase, then strengthened his commitments of more than $7 billion from a diverse group of investors including Silicon Valley heavy hitters like Oracle co-founder Larry Ellison.
Inside Twitter, Musk’s offer was met with confusion and falling morale, especially after Musk publicly criticized one of Twitter’s top lawyers involved in content-moderation decisions.
As Twitter executives prepared for the deal to move forward, the company instituted a hiring freeze, halted discretionary spending and fired two top managers. The San Francisco company has also been laying off staff, most recently part of its talent acquisition team.
Then, on July 8, Musk sent a letter to Twitter saying he was pulling out of the sale, claiming – among numerous allegations – that the social media site had not held up its end of the bargain by providing his team with information on fake and bot accounts.
But Twitter didn’t accept Musk’s declaration. The chair of Twitter’s board, Bret Taylor, tweeted in response that the board was “committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.”
What Musk wants
In a filing with the Delaware Court of Chancery, Musk’s lawyers accused Twitter of withholding information about fake accounts — a longtime preoccupation for Musk — and of creating delays, providing evasive responses and putting up technical obstacles. The filing also disputed Twitter’s request for an expedited trial, claiming that it would take months to obtain information from Twitter and to depose numerous witnesses on the subject of fake accounts.
In a filing submitted to the U.S. Securities and Exchange Commission, attorneys for Musk alleged the social media company is “in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement,” and says Musk will likely suffer financially as a result.
The filing repeated several other accusations Musk has lodged previously, including the claim that Twitter violated the acquisition agreement when it fired two high-level managers without first informing Musk.
After Twitter filed the lawsuit, Musk, who has more than 100 million followers, tweeted “Oh the irony lol” without explanation. Earlier in the week, he had taunted Twitter over the anticipated lawsuit, suggesting that the trial court discovery process — when both sides have to hand over evidence — would finally reveal the internal spam bot data he’s been demanding.
Essentially, Musk and his attorneys are pushing both for more time to conduct the hearing, and for Musk to ultimately be able to pull out of the deal.
Alex Spiro, an attorney for Musk, wrote in a Friday filing: “Twitter’s bid for extreme expedition rests on the false premise that the Termination Date in the merger agreement is October 24, glossing over that this date is automatically stayed if either party files litigation. By filing its complaint, Plaintiff has rendered its supposed need for a September trial moot.”
The request for a delayed trial was denied Tuesday.
What Twitter wants
Either Musk or Twitter would be entitled to a $1 billion breakup fee if the other party is found responsible for the agreement failing. Twitter wants more, however, and is seeking a court order directing Musk to follow through with the deal.
In its lawsuit filed in Delaware, Twitter claimed Musk’s “outlandish” and “bad faith” actions have caused the social media platform irreparable harm and sunk its stock price.
“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 suit states.
The social media company’s top attorney on Tuesday said Musk “inflicts harm on Twitter everyday, every hour and every day,” per CNN, saying the billionaire should be held to his initial contract.
”Musk has been and remains contractually obligated to use his best efforts to close this deal,” Twitter attorney William Savitt reportedly said. “What he’s doing is the exact opposite; it’s sabotage.”
In short, Twitter wants to complete the deal both sides had agreed to, and says Musk’s reasons for backing out are just a cover for his cold feet after the takeover no longer makes financial sense for him.
It is certainly possible that Musk will be forced to follow through with his original agreement to purchase the social media giant, though some experts say the court may not go that far. That said, the general sentiment favors Twitter in the suit.
In a case with potential relevance to Musk’s legal fight, the chancery court last year forced private equity firm Kohlberg & Co. to go through with its $550 million buyout of DecoPac, a company based in Minnesota that calls itself the world’s largest supplier of cake decorating supplies to professional decorators and bakeries. The case was emblematic of the court’s common — though not uniform — resolution of enforcing contractual obligations on buyers.
Other options include Musk being forced to pay the $1 billion breakup fee each side agreed to if deemed responsible for the deal falling through. Or he might have to pay off a larger amount without actually buying the company for $44 billion.
