Twitter filed a lawsuit against Elon Musk on Tuesday to compel him to finish his $44 billion takeover of the social media behemoth after he declared on Friday that he would drop his offer.
The lawsuit accused the billionaire of making “bad faith” arguments against Twitter and launching “public and misleading attacks” on the business, claiming that “Musk’s exit strategy is a model of hypocrisy.”
The lawsuit has begun what could be a protracted legal battle over the failed merger. The CEO of Tesla and wealthiest man on the planet had agreed to buy Twitter on April 25, offering to buy all of the company’s shares for $54.20 each, but he started to back out over claims that the platform had “spam” accounts.
According to the lawsuit, “Musk entered into a binding merger agreement with Twitter, promising to use his best efforts to get the deal done.” Because the agreement he signed no longer serves his personal interests, Musk is refusing to uphold his obligations to Twitter and its stockholders less than three months after signing them.
Due to a clause in the agreement known as a “specific performance clause,” the court may order Musk to purchase the business as long as he has the funding in place, which he claimed to have done in May.
Musk stated in a filing to the Securities and Exchange Commission that he is trying to avoid a penalty that could cost him $1 billion for leaving. Musk could face additional sanctions from the SEC, such as having his leadership of one or more of the businesses he oversees, such as Neuralink, Tesla, or SpaceX, removed.
The complaint describes how Musk made a relatively expensive offer to purchase Twitter and then backed out after the market slump caused a decline in tech stocks. Musk would need to demonstrate a “material adverse effect” or contract breach in order to successfully exit the deal without paying a fine. According to the lawsuit, “Musk had to try to conjure one of those.”
According to the lawsuit, Musk did this by concentrating on the “spam bot” problem. Twitter stated that less than 5% of its more than 200 million users were spam accounts, but Musk insisted that the percentage was higher and charged Twitter with hiding information about the issue. This month, Twitter made public the fact that it was suspending more than 1 million spam accounts daily.
The litigation may last several months or longer, according to Carl Tobias, a researcher at the University of Richmond School of Law, making a settlement likely.
“The litigants will understand that it could be expensive, time-consuming, and fruitless,” he said. “A drawn-out legal battle could be very costly and time-consuming, could divert both sides from more beneficial efforts to enhance their current businesses, and might reveal numerous embarrassing aspects of their business practices that could have a negative impact on their reputations.”
On April 14, Musk announced his takeover bid. After Musk confirmed a funding package for the deal that included $21 billion of his own money, the Twitter board approved the acquisition.
Musk stood to gain control of a social media network with more than 200 million users through the agreement. He had vowed to push for several reforms, including easing content restrictions, purging the platform of fake and automated accounts, and moving away from its advertising-based revenue model. He was an enthusiastic but critical user of the platform.
On May 13, Musk declared that the deal was “on hold” while he awaited information to back up Twitter’s claim about spam or fake accounts. He stated that the percentage was 20% and that Twitter would have to provide evidence of a lower figure in order for the purchase to proceed.
In the strongly worded complaint, Twitter strongly refutes this claim, claiming that Musk continued to falsely claim that Twitter had “failed to cooperate” in providing the information, “apparently in the belief that repeating a falsehood enough can make it true.”
The lawsuit describes several tweets Musk sent that were “disparaging” to the business, including one at Twitter CEO Parag Agrawal that contained a poop emoji and several memes.
The complaint claimed that for Musk, Twitter, the interests of its stockholders, the transaction he agreed to, and the legal procedure to enforce it were all “extended jokes.”
On Tuesday afternoon, Musk appeared to respond to the lawsuit by tweeting, “Oh the irony lol.”
