Twitter sued Tesla CEO Elon Musk on Tuesday to force him to complete the $44 billion acquisition of the social media company.
Musk and Twitter have been bracing for a legal fight since the billionaire said on Friday he was backing off of his April agreement to buy the company.
Twitter's lawsuit opens with a sharply worded accusation: "Musk refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests."
"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 says.
Twitter filed its lawsuit in the Delaware Court of Chancery, which frequently handles business disputes among the many corporations, including Twitter, that are incorporated there.
As part of the April deal, Musk and Twitter had agreed to pay each other a $1 billion breakup fee if either was responsible for the deal falling through. The company could have pushed Musk to pay the hefty fee but is going further than that, trying to force him to complete the full $44 billion purchase approved by the company's board.
"Oh the irony lol," Musk tweeted after Twitter filed the lawsuit, without explanation.
'Strong and compelling' case
The arguments and evidence laid out by Twitter are "very strong and compelling" and likely to get a receptive ear in the Delaware court, which doesn't look kindly on sophisticated buyers backing off of deals, said Brian Quinn, a law professor at Boston College.
"They make a very strong argument that this is just buyer's remorse," Quinn said. "You have to eat your mistakes in the Delaware Chancery Court. That's going to work very favorably for Twitter."
Musk alleged Friday that Twitter has failed to provide enough information about the number of fake accounts on its service. Twitter said last month that it was making available to Musk a "fire hose" of raw data on hundreds of millions of daily tweets.
The company has said for years in regulatory filings that it believes about 5% of the accounts on the platform are fake. Musk is also alleging that Twitter broke the acquisition agreement when it fired two top managers and laid off a third of its talent-acquisition team.
Twitter's suit repeatedly emphasizes Musk's contemplation of starting a Twitter competitor, an alternative option he sometimes aired publicly and sometimes privately to Twitter's executives and board members. While the company has said it cooperated in providing the spam bot data he requested, the lawsuit suggests there was concern that disclosing too much "highly sensitive information" could expose Twitter to competitive harm if shared.
The biggest surprise for Quinn was how much evidence Twitter has — for instance, communications with Musk about whether to retain or lay off employees, as well as the billionaire's own public tweets — to reject his arguments for backing out.
"They are marshaling many of Musk's own tweets to hoist him on his own petard," he said.
Tesla stock drops
When Musk offered to buy the company and take it private in mid-April, the board initially tried to block him by deploying a financial maneuver that would have made the acquisition prohibitively expensive.
By April 25, though, Twitter had reconsidered the offer, concluding that selling the company to Musk for $54.20 a share was in the best interest of shareholders. In a joint press release, Musk pledged to "unlock" the social media company's potential by loosening restrictions on speech and rooting out fake accounts.
But his confidence didn't last long. Tesla's stock — Musk's primary source of wealth — plummeted amid a broader stock market selloff in May, and Musk soon seemed less enthusiastic about owning Twitter.
Twitter's suit calls Musk's tactics "a model of hypocrisy," noting that he had emphasized plans to take Twitter private in order to rid it of spam accounts. Once the market declined, however, Twitter noted that "Musk shifted his narrative, suddenly demanding 'verification' that spam was not a serious problem on Twitter's platform and claiming a burning need to conduct 'diligence' he had expressly forsworn."
Similarly, the company charges that Musk operated in bad faith, accusing him of requesting company information in order to accuse Twitter of providing "misrepresentations" about its business to regulators and investors.
Twitter's lawsuit alleges that the company "has suffered and will continue to suffer irreparable harm" as a result of Musk's contractual breaches that "cast a pall over Twitter and its business."