“Musk’s exit strategy is a model of hypocrisy,” the lawsuit said, accusing the billionaire of making “bad faith” arguments against Twitter and carrying out “public and misleading attacks” on the company.
The suit has kicked off what could be a long legal saga regarding the failed merger. The Tesla CEO and richest man in the world had reached a deal to buy Twitter in April, offering to purchase all of the company’s shares for $54.20 each, but he began to back out over allegations of “spam” accounts on the platform.
“Musk entered into a binding merger agreement with Twitter, promising to use his best efforts to get the deal done,” according to the lawsuit. “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.”
A clause in the deal called a “specific performance clause”, with it, the court could force Musk to buy the company as long as he has financing in place, which Musk claims to have secured in May.
Possibly, as provided in the clause, Musk could be ordered by the court to pay $1bn as a penalty for walking away from the deal.
However, for Musk to successfully evade the deal, he would have to prove “material adverse effect” or a breach of contract. His claim of spam bots making upto 20% of the 200 million Twitter user base, in contrast to the just 5% claim by Twitter, provides a good ground for this.
Carl Tobias, a scholar at the University of Richmond School of Law, said the litigation could consume several months or longer, making a settlement likely.
“The litigants will realize that it could be protracted, expensive and unproductive,” he said. “A protracted legal battle could be very expensive and time consuming, could distract both sides from moving on to more productive efforts to improve their current businesses and might reveal numerous embarrassing aspects of their business practices that could have detrimental effects on their reputations.”
On April 14, Musk declared his takeover bid, and Twitter’s board agreed after Musk confirmed a funding package for the deal that included $21bn of his own money.
On May 13, Musk said that the deal was “on hold” citing Twitter’s inability or refusal to come clean on the true number of spam or fake accounts on the platform.
A standpoint that Twitter has strongly denied, stating that all needed information has been provided by the company.
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