Twitter v Musk promises to be the civil legal battle of the decade. A few hundred thousand words have already been written about the upcoming count spectacular.
The First Shareholder Suit
Lost in it all is that there's already a Twitter-Musk lawsuit. It was filed a few months ago and is already moving through federal court. It's a shareholder derivative suit and in this go-round Twitter and Musk are co-defendants. Barring unforeseen circumstances, Twitter and Musk are about to fight it out in one courtroom while they work together to defend themselves in another. Those dynamics, to say the least, will be interesting.
Meanwhile, the shareholder suit moves forward.
Twitter Shareholders
A group of Twitter shareholders – obviously very much minority shareholders – claim that almost immediately after Musk’s proposed acquisition, he and Twitter's Board of Directors (which, of course, Musk had been invited to join) took actions that ‘unjustly harmed the value’ of Twitter’s stock.
The suit claims that when Twitter agreed to sell itself to Musk for $54.20 per share (the much-ballyhooed $44 billion price tag) Twitter knew that Musk had not only negotiated without any due diligence, he had expressly waived it to get the deal done.
The plaintiffs are pointing out the obvious: when the buyer says they don’t need due diligence, red flags would be hoisted across the land. Twitter, instead, jumped at the offer, presumably Musk’s [very good] law firm wept openly.
As with any lawsuit, there are accusations and facts. Fact: since the deal was announced, Tesla stock dropped 37%. (Is there a Tesla shareholder derivative action? Yes, several, but none – yet – related to the Twitter deal. Stay tuned).
Accusation:
Musk “had pledged his Tesla stock as collateral for a $12.5 billion loan to finance the Twitter buyout. . . The drop in share price put Musk at risk of a margin call or requirement to put up more funds.”
Fact:
Musk sent out tweet after tweet about the deal and Twitter.
Accusation:
"Musk proceeded to make statements, send tweets, and engage in conduct designed to create doubt about the deal and drive Twitter’s stock down substantially in order to create leverage that Musk hoped to use to either back out of the purchase or re-negotiate the buyout price by as much as 25% which, if accomplished, would result in an $11 billion reduction in the Buyout consideration”.
Anyone following the non-stop news since the deal was announced knows that Twitter has hardly been vociferous on its own behalf. Until they filed suit to compel Musk to complete the sale.
The shareholders though, the people who have been caught in the middle of all this as spectators, the ones who have taken the financial hit, are speaking up.
That’s what shareholder derivative actions are for.
