Twitter sued Elon Musk in the Delaware Court of Chancery on Tuesday, setting up a legal battle in which the social media giant aims to force the billionaire to follow through on his plans to purchase the company for $44 billion.
The Tesla and SpaceX CEO moved to back out of the deal on Friday, accusing Twitter of misrepresenting the number of spam bots it has on its platform, according to documents filed with the Securities and Exchange Commission. Now, the company has filed its suit against the billionaire in hopes of forcing him to adhere to the terms of his agreement.
“In April 2022, Elon Musk entered into a binding merger agreement with Twitter, promising to use his best efforts to get the deal done,” the lawsuit reads. “Now, less than three months later, Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests.”
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The company accuses Musk, 51, of attempting to get out of the deal due to the declining price of Tesla’s stock. “Rather than bear the cost of the market downturn, as the merger agreement requires, Musk wants to shift it to Twitter’s stockholders,” the suit reads. “This is in keeping with the tactics Musk has deployed against Twitter and its stockholders since earlier this year, when he started amassing an undisclosed stake in the company and continued to grow his position without required notification. It tracks the disdain he has shown for the company that one would have expected Musk, as its would-be steward, to protect.”
The company noted Musk’s regular disparagement of the company on social media, including his mocking of Twitter CEO Parag Agrawal.
The suit claims that Musk said he intended to rid the platform of spam bots after acquiring it, only to change his stance later due to shifting prices.
Musk’s three claims to justify ending the deal are “pretexts and lack any merit,” the suit reads. “Twitter has abided by its covenants, and no Company Material Adverse Effect has occurred or is reasonably likely to occur. Musk, by contrast, has been acting against this deal since the market started turning, and has breached the merger agreement repeatedly in the process.”
Twitter has asked the Delaware court to order Musk to perform his obligations as established within the initial contract and to “consummate the closing in accordance with the terms of the merger agreement.”
Musk appears unaffected by Twitter’s legal threat. The billionaire made light of the lawsuit in a series of tweets on Monday, alleging that they will have to disclose their bot counts in court.
The company restated during a Thursday briefing that its spam counts were still under 5%, according to Reuters, an estimate it has maintained over the past two years of quarterly releases. The company also reiterated that it manually examines thousands of accounts at random and uses public and private data to calculate and report the results to shareholders.
Agrawal did not take Musk’s threats well and has allegedly come out fighting in front of Twitter staffers. “Parag wants to swing back more and is being more aggressive internally,” one former Twitter executive said. “It seems Twitter is willing to go to war to make this deal happen.”
Several staff members at Twitter have also expressed concerns about how the deal has been handled to date, including claims that Twitter leadership has struggled to inform staff about the legal proceedings and that they have failed to step up as leaders.
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If Twitter wins its court case against Musk, he will be forced to purchase its stock at $54.20 a share. If Musk succeeds, he will be released from his contractual obligations and merely have to pay a $1 billion termination fee as established in the agreement.
Musk’s main argument is that Twitter misled him by claiming only 5% of its active users are spam bots. Further, his justification for backing out of the deal is that the alleged misrepresentation could cause a “material adverse effect” on the company. The Delaware court has only ruled once before in favor of such an argument.
Musk’s lawyers are also arguing that the social media giant breached the terms of the deal by failing to provide the billionaire with enough information about the spam bots. Musk’s legal team also claims Twitter hasn’t been operating ordinarily since the deal was signed.
