Elon Musk and Twitter Inc. will face off in Delaware Chancery Court on October 17 in an attempt to compel Musk to complete his $44 billion purchase. Both parties have sought material to buttress their respective claims in recent weeks, occasionally appealing the judge to compel the other party to comply with their demands.
What’s the deal with Elon Musk and Twitter in court?
On July 8, Mr. Musk declared his decision to exit the deal, stating that Twitter had failed to provide the necessary data and statistics to examine the number of false or spam accounts on the platform. Days later, the social media company sued Mr. Musk to enforce the original terms of the deal.
Mr. Musk, the CEO of Tesla Inc., began quietly purchasing Twitter shares in late January. He was the company’s largest individual investor at the time his position became public in early April. He then moved to buy the entire company with the purpose of taking it private. Twitter agreed to sell itself that month.
In the weeks that followed, Mr. Musk repeatedly expressed concerns about Twitter’s governance and the presence of spam bots and bogus accounts on the platform. Mr. Musk stated in May that the deal was “temporarily on pause” while further information was obtained, but that he was still committed to the transaction. Less than two months later, he attempted to sever the cord.
What are the claims?
According to Twitter’s complaint, it complied with Mr. Musk’s data requests and that he was using the spam bots as a pretext to back out of the deal if market conditions deteriorated, lowering his personal riches.
“Rather than bear the cost of the market downturn, as required by the merger agreement, Musk want to shift it to Twitter’s stockholders,” the company stated.
Mr. Musk accuses Twitter of lying. He was skeptical of the deal after Twitter revised certain user estimates in April and after meeting with company executives in May to discuss how the platform manages spam and bogus accounts. Mr. Musk’s accounts stated in court that he was troubled by the company’s accounting process, notably the lack of automated instruments to aid in the computation. He also alleges that Twitter made changes to the company, including personnel decisions, about which he, as the future owner, should have been told.
Mr. Musk, according to Twitter, violated contract terms, including nondisclosure agreements.
What precisely are spam bots?
Spam and fraudulent accounts are a common issue for social media companies. Bots, or automatic software programs capable of rapidly and widely disseminating postings, are occasionally used to control them. Such accounts damage legitimate users’ experiences by presenting postings that they do not understand are created by bots or otherwise under false pretenses.
Bot operators have used phony accounts to incite violence, disseminate false information, mislead political operations, and achieve other illicit goals. Fake accounts may also make it harder for advertisers to identify how much value they are obtaining for their money on social media sites.
Twitter claims that such accounts make up less than 5% of its monetizable daily average users, while the true proportion could be greater. Mr. Musk claims that the figure is much higher.
According to academics, Mr. Musk, who has over 100 million Twitter followers, has likely had substantially more exposure and experience with bogus and spam accounts than the bulk of users on the social-media platform.
Mr. Musk waived due diligence in the deal process, arguing that Twitter failed to give him with the data required to verify the figure. Twitter stated that it provided Mr. Musk with adequate data, but that its accounting is difficult for outsiders to replicate.
Before the merger deal was signed, the billionaire claimed that he wanted to “fight the spam bots or die trying!”
What precisely is the Delaware Chancery Court?
For corporate acquisition and merger concerns, the court is often regarded as the most important institution in the country.
Twitter, like many other companies, is headquartered in Delaware. According to its secretary of state, it is home to more than two-thirds of Fortune 500 firms. Mr. Musk and Twitter agreed to settle any disputes arising from his potential acquisition of the microblogging site in Delaware Chancery Court or any Delaware state or federal court.
The Chancery Court, a nonjury trial court, promotes itself as the main US venue for legal cases involving the internal operations of Delaware corporations and other corporate organizations that conduct “a considerable share of the world’s economic interactions.”
Who will make the final call on the Musk-Twitter deal?
Chancellor Kathaleen McCormick will rule on the matter. She was appointed to the Chancery Court in2018, when it grew from five to seven members. She became the court’s first female leader in its 230-year existence when she was appointed chancellor last year.
Lawyers say Chancellor McCormick, who began her career as a legal-aid attorney, is recognized for her meticulous preparation, ability to interpret complex corporate contracts, and willingness to work past the hour if required. In2019, she completed a lawsuit against a takeover in less than two months, drafting the 95-page judgement over the course of a weekend spent working at her home and workplace.
Chancellor McCormick is also presiding over another multibillion-dollar case involving Mr. Musk. In that case, a Tesla shareholder contends that the board of directors violated its fiduciary duties by awarding Mr. Musk a $56 billion pay package in 2018. Tesla denies this. Following the Twitter lawsuit, a trial is scheduled to commence soon.
What are the possible outcomes?
Twitter asked Chancellor McCormick to order Mr. Musk to finalize the deal, which is the business equivalent of a shotgun wedding.
Alternatively, if she determines, as Mr. Musk believes, that Twitter violated the merger agreement by misleading him about the prevalence of spam or bogus accounts on its platform, she may terminate him.
Mr. Musk sold roughly $7 billion in Tesla stock in early August, citing uncertainty about the Twitter deal: “In the (hopefully unlikely) case that Twitter pressures this deal to close and some equity partners do not come through, it is vital to prevent an emergency sell of Tesla stock.”
Mr. Musk and Twitter may be able to settle their dispute outside of court.
What is Twitter’s legal strategy?
In early August, Twitter issued subpoenas to numerous of Mr. Musk’s Silicon Valley investors, acquaintances, and financial backers in search of discussions relevant to the deal. According to non-party attorneys and academics, the corporation’s objective is likely to establish whether Mr. Musk had any more concerns about completing his deal to acquire the company beyond what he has already stated.
Twitter also served subpoenas on at least a dozen banks in order to obtain information on stock and debt financing, as well as correspondence relevant to the deal.
The subpoenas requested information and records such as face-to-face conversations, physical mail, emails, text messages, instant chats, social media links, facsimiles, and phone calls, according to court filings. According to Twitter’s legal documents, the company is requesting records and correspondence related to fake or spam accounts, among other things.
According to attorneys and academics, Twitter may be looking for talks to back up its claim that Mr. Musk is refusing because he lost more than $100 billion in the market slump. Mr. Musk has committed up to $33 billion of his own funds to the deal.
What are Mr. Musk’s claims?
In early August, Mr. Musk filed a countersuit against Twitter, accusing the company of misrepresenting the status of its business and vital data about its platform users.
Mr. Musk says that many monetizable Twitter users do not contribute to the company’s financial success, despite what the company claims, because most monetizable daily average users see almost no advertisements.
Twitter responded to Mr. Musk’s countersuit by stating that the billionaire’s claim that he was duped is doubtful and that he does not have the right to withdraw because of his concerns about the number of spam or fraudulent accounts on its platform.
Twitter also stated that Mr. Musk has identified no erroneous or misleading statements in its regulatory filings and that he is attempting to alter facts and use litigation to harm the company.
What is the significance of the Twitter whistleblower claim in this context?
A whistleblower lawsuit filed with the Securities and Exchange Commission in July by Peiter Zatko, Twitter’s former head of security who was fired earlier this year, backed some of Mr. Musk’s accusations. Mr. Zatko is a well-known computer-security researcher who goes by the moniker “Mudge.” His letter, released in late August, accuses Twitter of making fraudulent regulatory disclosures about spam and phony accounts.
Peiter Zatko, Twitter’s former head of security, filed a whistleblower lawsuit accusing the company of making fraudulent regulatory disclosures.
Mr. Musk’s lawyer, Alex Spiro, used Mr. Zatko’s whistleblower complaint in a late August hearing in Wilmington, Del., to buttress his assertion that Twitter misled shareholders with information Mr. Musk relied on when agreeing to the merger conditions.
According to a court filing made public on August 29, Mr. Musk’s team issued a subpoena to Mr. Zatko asking data and discussions about how Twitter monitors and deals with fraudulent and spam accounts. It also wants to hear about reports to CEO Parag Agrawal or other executives about the company’s alleged security problems, as well as details surrounding Mr. Zatko’s departure from Twitter.
A deposition is requested on September 9th, according to the subpoena. Mr. Zatko’s attorney, Debra Katz, stated that he would comply with the subpoena’s legal obligations and that his participation in the deposition would be forced.
What would be the impact of a whistleblower complaint?
The whistleblower action is distinct from the merger dispute, and its arguments differ from Mr. Musk’s. According to law professors, litigators, and attorneys following the case, it might be used to gain additional discovery, add new claims, and provide new information about whether Mr. Musk had proper facts when he agreed to buy the company.
In response to Mr. Zatko’s objection, Mr. Musk’s attorneys amended their grounds for abandoning the deal in a securities filing on Aug. 30. According to the letter, if the allegations are true, Twitter will have broken many provisions of the merger agreement, resulting in a “substantial adverse impact.”
Twitter responded with a letter stating that it had not breached any of its obligations under its merger agreement with Mr. Musk. The company also stated in the letter, which was made public the same day in a securities filing, that it intends to enforce the deal at the agreed-upon terms and price, and that Mr. Zatko’s lawsuit is “riddled with contradictions and falsehoods and lacks important context.”