Should Twitter’s lawsuit compel Elon Musk to honor his $44 billion takeover bid for the company, it will partly have the Tesla CEO’s addiction to social media to thank.
The 62-page document that Twitter’s board filed with the Court of Chancery in Delaware, its tax domicile, reads like a forensic takedown of Musk that readily employs his own penchant to tweet to build its case against him.
Meticulously it reconstructs the events leading to the Tesla CEO’s initial demand in April for Twitter to acquiesce to his $54.20 per share take-it-or-leave-it bid before subsequently spinning “meritless and contrived” claims over the number of spam, bot, or fake accounts to back out of it earlier this month.
“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 shareholder value, and walk away,” its lawyers claimed, citing in total 13 tweets along with presenting other evidence from interviews, public comments, emails, and text messages.
In its first legal salvo to argue its case, Twitter paints the picture of an entrepreneur that imposed damaging ultimatums, held the company in “disdain,” violated numerous contractual obligations, and routinely damaged its reputation at the expense of its shareholders and employees.
The company furthermore claimed Musk could never substantiate accusations that the share of economically worthless bot accounts was far higher than the 5% Twitter estimates, even after gaining access to nearly 54 terabytes of proprietary data last month.
The turning point Twitter believes was the last genuine effort made to conclude the transaction came on May 5 when Musk brought on board wealthy external investors like Andreessen Horowitz and Sequoia Capital—a tacit acknowledgment of the growing risk he faced and an attempt to spread the cost over more shoulders.
On the following day, it all began to gradually unravel, as Musk set off on a “fishing expedition” over the coming weeks to torpedo his own deal.
Twitter pointed to tweets as far back as April suggesting Musk knew full well what he was getting himself into when it came to the cost of bots, only to bail on the deal by cooking up false pretexts once a bear market threatened the personal wealth tied up in his Tesla stake.
The more stock in his electric vehicle manufacturer fell, the more costly it became to fund the $33.5 billion Musk committed in equity, and the more shares he’d have to liquidate in a successful car company just to buy an unprofitable social media platform.
“Musk wanted an escape. But the merger agreement left him little room,” they continued.
With no financing contingency or condition governing due diligence, it left him no other option than to accuse Twitter of a material covenant breach or claim the company had Material Adverse Effect (MAE) as defined under the contract.
“Musk had to try and conjure one of those,” Twitter argued—and landed upon bots as his excuse.
Given that its board had already been burned when Musk backed out of a written deal in April to join them as director, it sought to protect itself by narrowing the terms under which the Tesla CEO could argue the high threshold for an MAE was met.
“Twitter had been buffeted by Musk’s reversals before. For the benefit of stockholders and employees, the board needed assurance that this agreement would stick,” it wrote.
Musk claims ‘Chuckmate’
Misrepresentation over Twitter’s daily manual sampling of 9,000 accounts per quarter to determine bots—roughly 100 per day as Musk alluded to—along with subjective social media polls among 1.6 million of his fans did nothing to prove his case.
Following them up with requests for the SEC to investigate management only indicated he was acting in bad faith, according to the company.
Subsequently Twitter documented extensive calls, information requests, and meetings with the entrepreneur’s team in the following days and weeks, arguing it “bent over backwards” to ensure the deal could be finalized.
Instead, its efforts were met with silence, or worse Musk texted them to “back off,” according to its account.
“Musk’s increasingly outlandish requests reflect not a genuine examination of Twitter’s processes but a litigation-driven campaign to create a record of non-cooperation on Twitter’s part,” it wrote, arguing these were designed “to try and tank the deal”.
After the Tesla CEO posted two tweets on July 11 suggesting he had outwitted Twitter in a kind of legal chess game, the company came to believe Musk never intended to make progress towards the merger but rather to force the public disclosure of information—potentially to build a rival social media platform of his own.
“For Musk, it would seem, Twitter, the interests of its stockholders, the transaction Musk agreed to, and the court process to enforce it all constitute an elaborate joke,” it argued, when in reality he had a “hell-or-high-water” obligation to consummate the deal.
The end result of his conduct, according to the company, is clear: “Twitter faces irreparable harm,” the company wrote. “Swift remedial action…is warranted.”
That sounds expensive. And if a Delaware court ultimately awards Twitter damages or compels a merger, Musk might want to rethink his addiction to tweeting.
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