Twitter’s legal battle with billionaire Elon Musk is getting more intense.
Musk, who’s trying to back out of a $44 billion deal to buy the company, is scheduled to be questioned under oath next week by Twitter’s lawyers. Musk’s deposition is set to start Sept. 26 and could last three days, according to a Tuesday filing in Delaware’s Court of Chancery.
The deposition is the latest development in ongoing litigation between Musk and Twitter. Last week, Twitter shareholders voted to approve the deal, and Twitter co-founder and CEO Jack Dorsey’s deposition is scheduled for today.
Twitter sued Musk, who leads Tesla and SpaceX, because the billionaire said in July that he no longer wanted to buy Twitter and take the company private. Musk’s attempt to back out of acquiring the social media site has raised concerns about Twitter’s future.
Musk has said the deal can’t move forward until he gets proof that fewer than 5% of Twitter’s 229 million daily users in the first quarter were fake or spam-focused, an important metric for understanding Twitter’s ads business. But Twitter alleges in a lawsuit against Musk that the billionaire is trying to pull out of the deal because his personal wealth has fallen, so the acquisition has become more expensive for him.
As part of Musk’s argument for ending the deal, his lawyers are also trying to use a whistleblower complaint that alleges Twitter neglected security problems at the company. Twitter has pushed back against that complaint, calling it inaccurate, inconsistent and lacking in context.
Here’s what you need to know about the ongoing saga between Musk and Twitter.
Why’s Musk trying to end the deal?
Musk appears to have concerns about the future of Twitter’s business, even though he said at a TED2022 conference that he didn’t care about the “economics” of buying Twitter.
Musk’s lawyers allege that Twitter violated parts of the merger agreement and failed to provide the billionaire with information he requested, including about the social network’s calculations of daily users. Twitter makes most of its money from ad sales, so the number of people who can see ads while on the site is an important metric for the company.
Twitter isn’t buying Musk’s explanation and alleges in its lawsuit that his information requests were “designed to try to tank the deal.” The company accuses Musk of trying to back out of the deal because Tesla’s stock price has fallen, so the purchase has become more expensive for him.
“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 lawsuit said.
Musk’s lawyers also filed a countersuit against Twitter. The countersuit accuses Twitter of providing misleading information, prompting the billionaire to strike a deal to buy the company at “an inflated price.” Twitter has pushed back against the allegations that the company “hoodwinked” Musk.
Since then, Musk’s lawyers have tried to use other arguments to back out of the deal. In an Aug. 29 letter, they alleged that Twitter violated the merger agreement by not disclosing, or seeking Musk’s consent for, a $7 million June settlement with Peiter “Mudge” Zatko, Twitter’s former head of security, who filed a whistleblower complaint against the company.
Why did Musk want to buy Twitter in the first place?
Musk is an avid user of the service but also one of its loudest critics.
Musk tweeted a poll to his followers in March that asked whether users believed Twitter was protecting free speech. He said the poll results, in which roughly 70% of 2 million respondents answered “no,” would be “very important.”
“Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy. What should be done?” Musk said in a follow-up tweet. Then he made an offer to buy Twitter, noting that he believed Twitter needed to be private to accomplish his goal.
The guarantee of free speech in the US Constitution’s First Amendment applies to the government censoring speech but not to companies such as Twitter, which have their own rules about what isn’t allowed on their sites.
Musk referenced free speech again when Twitter announced the deal in April. He also said he wanted to enhance Twitter with new features and promised he would make the service’s algorithms open source, defeat spam bots and authenticate all humans.
“Twitter has tremendous potential,” Musk wrote. “I look forward to working with the company and the community of users to unlock it.”
Progressives have criticized social media companies for failing to crack down on harmful content such as hate speech and harassment. Conservatives claim their speech is being censored. (Twitter has long denied allegations it censors conservatives.)
On April 19, Musk tweeted that he thinks social media policies “are good if the most extreme 10% on left and right are equally unhappy.” He’s also said he would reverse the ban on former US President Donald Trump who was booted from the platform after the Jan. 6 Capitol Hill riots because of concerns about inciting violence. Trump has said he doesn’t plan to return to Twitter even if the company lifts the ban.
What has Twitter’s response been?
Twitter says closing the deal is in the best interest of shareholders.
Initially, it seemed like Twitter was going to turn down the offer but the board started to take it more seriously when Musk offered details about how he would finance the deal. The company had adopted a defensive strategy known as the “poison pill” that would make it tougher for Musk to add to his stake in the company. The tactic allowed Twitter to accept a competing offer, if one emerged.
Twitter co-founder Jack Dorsey tweeted on April 15 that “as a public company, twitter has always been ‘for sale.’ that’s the real issue.” Twitter has dealt with leadership changes, layoffs and activist investors as a public company. After Twitter announced the deal, Dorsey said he didn’t believe that anyone should own or run Twitter but taking it back from Wall Street is the “correct first step.”
The idea and service is all that matters to me, and I will do whatever it takes to protect both. Twitter as a company has always been my sole issue and my biggest regret. It has been owned by Wall Street and the ad model. Taking it back from Wall Street is the correct first step.
— jack⚡️ (@jack) April 26, 2022
“Solving for the problem of it being a company however, Elon is the singular solution I trust,” Dorsey tweeted. “I trust his mission to extend the light of consciousness.”
A filing with the US Securities and Exchange Commission also shed more light on how the deal came together. Musk spoke to Twitter co-founder Jack Dorsey in March about the future of social media and decentralizing social media so users get more control over their data and what content they see.
Musk’s effort to acquire Twitter has been a bumpy one. Musk rejected a seat on Twitter’s board before offering to take the company private. Musk also had a conversation with Dorsey in early April in which Dorsey said he thought Twitter, a publicly traded company, would be better off as a private company, the filing shows.
How did Musk plan to pay for Twitter?
Even for Musk, who’s worth about $220 billion, buying Twitter requires some financial juggling.
In an initial SEC filing on April 20, Musk said he had personally committed about $21 billion in equity financing. He also secured about $25.5 billion in debt financing through Morgan Stanley and other financial institutions.
Since then, Musk has raised capital by selling $8.5 billion in Tesla shares, presumably for the deal, and lined up $7.1 billion from outside investors. According to a May 4 filing, those investors include Sequoia Capital and Oracle co-founder Larry Ellison. (Ellison sits on Tesla’s board of directors.) Saudi Arabian investor Prince Alwaleed bin Talal Bin Abdulaziz Alsaud also agreed to pledge his stake of roughly 35 million shares to the deal.
On May 24, Musk pledged more equity to the deal. He’s now willing to put $33.5 billion toward the acquisition.
What happens next?
Twitter is asking the Delaware Court of Chancery to enforce the deal. A trial is expected to happen over five days in October. Killing the deal could cost Musk $1 billion because of a termination fee that’s part of the agreement, according to an SEC filing on April 25.
