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The Delaware Court of Chancery is Twitter's chosen venue for suing Elon Musk : NPR
A centuries-old court in Delaware will decide if Elon Musk has to buy Twitter
The Court of Chancery courthouse in Georgetown, Del. Twitter has filed suit against billionaire Elon Musk in the court of equity, which was created in 1792.
"The battle over Twitter's future is moving into a courtroom — not in California, where it is headquartered, but in Delaware, where the social media company was incorporated in 2007.
On Tuesday, Twitter sued billionaire Elon Musk in the Delaware Court of Chancery, a hub of high-profile corporate litigation that is more than two centuries old, descended from the the High Court of Chancery in Great Britain.
In a 62-page lawsuit, the company asked the court to order the world's richest man to complete a $44 billion takeover deal he has been trying to back out of.
Musk is no stranger to the Delaware Court of Chancery. Last year, the Tesla CEO prevailed in a suit brought by the company's shareholders. The court also has decided cases involving the likes of Facebook, Goldman Sachs, and McDonald's.
What is the Delaware Court of Chancery?
Many public companies, including roughly two-thirds of the Fortune 500, are incorporated in Delaware, and while the state's corporate-friendly tax system is a big reason why, so is its Court of Chancery, which has jurisdiction over corporate law.
Established in 1792, the court says it deals with "corporate matters, trusts, estates, and other fiduciary matters, disputes involving the purchase and sale of land, questions of title to real estate, and commercial and contractual matters in general."
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How is it different from other courts?
The Delaware Court of Chancery is more specialized than most courts in the U.S. While other courts consider cases in which one party is seeking monetary damages from another, the Court of Chancery does not.
Instead, it is a "court of equity." What does that mean, exactly? David Margules, a Wilmington-based partner with the law firm Ballard Spahr, explains:
"You are asking the court to enter an order that requires someone to do something, or prohibits someone from doing something."
Which is what Twitter is doing in this case.
Elon Musk is hoping to walk away from a $44 billion deal to buy Twitter.
In its lawsuit, it is asking the Delaware Court of Chancery to order the defendants — Musk and two corporations he established to facilitate his takeover deal — to close the deal.
Experts say companies may prefer courts of equity because they know the judges understand the ins and outs of corporate law. They become intimately familiar with case law, and they can handle cases in a sophisticated, efficient manner. In other courts, judges tend to be pulled in many different directions.
Who sits on the court?
There are seven judges: one chancellor and six vice chancellors. Picked by the governor, they tend to be longtime members of the Delaware State Bar Association who have spent their careers doing corporate litigation.
"The judges are generally experienced practitioners who cut their bones in private practice doing complex cases, and they work extraordinarily hard," Margules says.
Notably, in the Delaware Court of Chancery, there are no jury trials. The judges hold enormous power.
Parag Agrawal, CEO of Twitter, at the Allen & Company Sun Valley Conference.
How is this likely to play out?
Under Delaware law, Musk has 20 days to respond to the lawsuit, but to Twitter, time is of the essence. In a separate filing, it asked for an expedited timetable, saying any delay would harm the company and its shareholders.
Twitter wants Musk's lawyers to respond to the lawsuit by July 18, and the company proposed a four-day trial with a Sept. 19 start date.
"There is going to be a very tight timeframe, and the judge will be inclined to set a hearing on the merits very, very quickly," says Margules.
In their initial agreement, Musk and Twitter agreed to the sale by Oct. 24.
The Delaware Court of Chancery has a reputation for being efficient. Judges often dispense with opening statements, preferring instead to go straight to the evidence.
At issue is Twitter's request that the court compel Musk to complete the agreed-upon deal. If a judge decides not to do that, it's likely he or she would weigh in on whether Musk should pay a $1 billion breakup fee agreed upon in the deal.
Margules says the chancellor or vice chancellor overseeing the case will want to make sure there is ample time for an appeal to the Delaware Supreme Court, if necessary.
What if Elon Musk refuses to comply with a court order?
The Delaware Court of Chancery can hold someone in contempt of court, and it has the power to send someone to jail, experts say.
But Michael Hanrahan, a partner with the law firm Prickett, Jones & Elliott, who has been a member of the Delaware Bar for more than 40 years, suggests there is another way the court could hold Musk to account if he fails to comply with a decision that doesn't go his way.
"Elon Musk owns a lot of stock in Delaware corporations, which may be subject to seizure in Delaware," he says, noting Tesla and SpaceX are both incorporated in the state. "So, there may be means of compelling him."
NPR's Bobby Allyn contributed to this report."
Tuesday, July 12, 2022
How Elon Musk Left Twitter Worse Off Than He Found It - The New York Times
How Elon Musk Damaged Twitter and Left It Worse Off
"Mr. Musk swooped in and exposed Twitter’s lack of business and financial prospects. After criticizing the company’s weaknesses, he now wants to back out of buying it.
SAN FRANCISCO — For years, Twitter was a runner-up social media company. It never grew to the size and scale of a Facebook or an Instagram. It simply muddled along.
Then, Elon Musk, a power user of the service, stormed in. He offered $44 billion to buy Twitter and declared that the company could perform far better if he were in charge. He disparaged Twitter’s executives, ridiculed its content policies, complained about the product and confused its more than 7,000 employees with his pronouncements. As Mr. Musk revealed the company’s lack of business and financial prospects, Twitter’s stock plunged more than 30 percent.
Now, as Mr. Musk, a billionaire, tries to back out of the blockbuster deal, he is inexorably leaving Twitter worse off than it was when he said he would buy it. With each needling tweet and public taunt, Mr. Musk has eroded trust in the social media company, walloped employee morale, spooked potential advertisers, emphasized its financial difficulties and spread misinformation about how Twitter operates.
“His engagement with Twitter took a severe toll on the company,” said Jason Goldman, a member of Twitter’s founding team who has also served on its board of directors. “Employees, advertisers and the market at large cannot have conviction in a company whose path is unknowable and which will now go to court to complete a transaction with a bad-faith actor.”
The precarious situation underscores why Twitter is set to sue Mr. Musk as soon as this week to force a completion of the deal. The court battle is likely to be protracted and immense, involving months of expensive litigation and high-stakes negotiations by elite lawyers. A resolution is far from certain — Twitter might win, but, if it loses, Mr. Musk could walk away by paying a breakup fee. Or the two sides could renegotiate or settle.
On Monday, the damage that Mr. Musk, 51, has inflicted was evident. Twitter’s stock plunged more than 11 percent to one of its lowest points since 2020 as investors anticipated the coming legal battle. Since Twitter accepted Mr. Musk’s acquisition offer, on April 25, its stock has lost over a third of its value as investors have grown increasingly skeptical that the deal would get done on the agreed terms. (In contrast, the tech-heavy Nasdaq index was down about 12.5 percent in the same period.)
Twitter declined to comment on Monday. In a letter to Mr. Musk’s lawyers on Sunday, the company’s lawyers said that his move to terminate the deal was “invalid and wrongful” and that Mr. Musk “knowingly, intentionally, willfully and materially breached” his agreement to buy the firm. Twitter would continue to provide information to Mr. Musk and to work to close the transaction, the letter added.
Mr. Musk did not return requests for comment. On Sunday, the billionaire, who has cited the number of fake accounts on Twitter’s platform as the reason that he cannot buy the company, tweeted a picture of himself laughing at the situation.
Of all the wreckage Mr. Musk is leaving at Twitter, the most prominent may be how brutally he exposed the company’s waning financial and business prospects. Twitter has operated at a loss for seven of the nine years it has been a public company. During deliberations over Mr. Musk’s offer, the company received no serious interest from other suitors, people with knowledge of the situation have said. Twitter’s board determined that Mr. Musk’s offer of $54.20 a share was the best it could obtain, suggesting it saw no way to reach that price on its own.
“The board’s lack of conviction in the company’s long-term future will linger over employees, partners and shareholders regardless of the outcome with Elon,” Mr. Goldman said.
In recent months, Twitter’s business has deteriorated. Parag Agrawal, Twitter’s chief executive, said in a memo to employees in May that the company had not lived up to its business and financial goals. To address the issues, he pushed out the heads of product and revenue, instituted a hiring slowdown and began an effort to attract new users and diversify into e-commerce. In April, the company stopped providing a forward-looking financial outlook to investors, pending the acquisition.
That trajectory is unlikely to change as uncertainty over the deal discomfits advertisers, the main source of Twitter’s revenue.
“Twitter will have trouble in the near future reassuring skittish advertisers and their users that they’re going to be stable,” said Angelo Carusone, the president of the watchdog group Media Matters for America.
In what was an implicit dig at Twitter’s top executives, Mr. Musk said he could have done way better with the company. In a presentation to investors in May, he said he planned to quintuple the company’s revenue to $26.4 billion by 2028 and to reach 931 million users that same year, up from 217 million at the end of last year.
Mr. Musk emphasized Twitter’s rudderless financial direction in a letter filed to the Securities and Exchange Commission on Friday. The company’s “declining business prospects and financial outlook” had given him pause, his lawyers wrote, especially considering Twitter’s recent “financial performance and revised outlook” on the fiscal year ahead.
Mr. Musk, who has more than 100 million followers on Twitter, has also jackhammered the product, saying it is not as attractive as other apps. He has repeatedly claimed, without evidence, that Twitter is overrun with more inauthentic accounts than it has disclosed; such accounts can be automated to pump out toxic or false content. (The company has said fewer than 5 percent of the accounts on its platform are fake.)
His barbs about fake accounts have weakened trust in Twitter, just as the company prepares to moderate heated political discussions about an upcoming election in Brazil and the midterm elections this fall in the United States, misinformation experts said.
In another criticism of Twitter and the way it supervises content, Mr. Musk vowed to unwind the company’s moderation policies in the name of free speech. In May, he said he would “reverse the permanent ban” of former President Donald J. Trump from Twitter, allowing Mr. Trump back on the social network. That riled up right-wing users, who have long accused the company of censoring them, and renewed questions about how Twitter should handle debates over the limits of free speech.
Inside the company, employee morale has been battered, leading to infighting and attrition, according to six current and former employees.
Some of those who remain said they were relieved that Mr. Musk seemed to have decided against owning the company. Others shared nihilistic memes on the company’s Slack or openly criticized Twitter’s board and executives for entertaining Mr. Musk’s offer in the first place, according to internal messages viewed by The New York Times. The mood among executives was one of grim determination, two people with knowledge of their thinking said.
Evan Williams, a founder of Twitter, tweeted on Friday that he wished for an end to Mr. Musk’s antics.
“If I was still on the board, I’d be asking if we can just let this whole ugly episode blow over,” Mr. Williams posted in response to the announcement that Twitter intended to sue Mr. Musk and force the deal forward. “Hopefully that’s the plan and this is ceremony.”
Manu Cornet, a Twitter employee, illustrated the mood with a cartoon that showed a shattered company that had been bumped off a shelf by Mr. Musk’s careless elbow. His caption: “You break it, you buy it!”
Ryan Mac and Isabella Simonetti contributed reporting."
Monday, July 11, 2022
Saturday, July 09, 2022
Twitter faces 'worst case scenario' as Elon Musk terminates purchase - The Washington Post
As Musk moves to abandon deal, Twitter faces ‘worst case scenario’
"In attempting to walk away from the $44 billion acquisition, Elon Musk sets the stage for a legal battle, which could carry financial risks for the social network and further darken employee morale
Elon Musk’s attempt to terminate his Twitter acquisition will likely force the social network into a protracted legal battle and send its stock price diving — thrusting a new level of chaos upon the firm, after months of public disputes have battered its reputation and employee morale.
In short? “This was worst case scenario for Twitter, and now it’s happened,” said Dan Ives, the managing director and senior equity research analyst covering the tech sector at Wedbush Securities.
Ives warned that Musk’s bid to walk away may make the company appear to be “damaged goods” in the eyes of other investors or potential acquirers. Twitter shares were down nearly 6% in after hours trading on Friday. Wedbush Securities projects the stock could sink to between $25 and $30 when the market reopens Monday, down more than 30 percent from where it closed Friday afternoon before Musk’s filing.
In a Friday evening news release, Twitter’s board threatened to “pursue legal action” to enforce the terms of the $44 billion deal Musk struck in April to buy the social network and take it private. He is required to go through with the purchase barring a major change to the business, which legal experts say is a difficult to prove.
Twitter’s board said that it was confident the company would prevail in court, but analysts warn — and employees fear — that Musk’s letter sets the stage for a turbulent period, which could carry new financial risks for the company and its workers.
The billionaire has been threatening to pull back from the deal for weeks, but Friday’s filing opens a new front in the dramatic takeover of the social network, which wields outsize influence over news coverage and politics. Musk’s lawyers have repeatedly accused Twitter of failing to turn over data to help his team confirm the number of bots or spam accounts on the social network, setting a stage for a legal battle. Meanwhile, the company maintains it has complied with all of the terms of its agreement and has turned over its “firehose,” a massive stream of data comprising more than 500 million tweets posted everyday. Legal experts say Musk’s case doesn’t meet a threshold to allow him to walk away from the deal.
Even if Twitter does prevail in recovering the deal or recouping a $1 billion breakup fee, a court battle invites new challenges. Twitter could be forced make key business metrics public, inviting questions from Wall Street about the overall health of the company, which turned its first profit in 2018 amid a major financial retooling.
Donna Hitscherich, a Columbia Business School professor, said Musk’s filing will naturally raise questions about why he lost interest.
“Is he a material kind of guy who just changed his mind?” she said. “Or is there something really there to what he said might be issues with the fundamental nature of the business?”
After weeks of threats, employees have largely been bracing themselves for Musk to formally attempt to walk. “This has been the direction of travel for a while,” said one employee, who spoke on the condition of anonymity to candidly discuss the situation within the company. “There’s been a general lack of belief that the deal would go through as signed.”
But its arrival only exasperated many workers, who say negotiations with Musk have brought intense scrutiny to Twitter. Any stock downturn would impact employee compensation, adding to the dismay of workers who have largely bristled at the prospect of the world’s richest man taking over their company. Since Musk announced his takeover, Twitter instituted a hiring freeze and has replaced key executives.
Twitter generally has a culture of transparency and open communication, the employee said, but because of the sensitivities around the deal, more information has been on lockdown. Those tensions could worsen if the deal goes to court.
That employee said their reaction to the twists and turns could be summed up most succinctly with a clown emoji.
Another employee, who previously supported the bid, described the situation as “totally depressing.”
“Musk is destroying Twitter,” said the person, who spoke on the condition of anonymity for the same reasons. “The best result for shareholders will be closing the deal at $54.20, even with a hostile owner.”
Musk began complaining about the bot issue soon after he agreed to purchase and take the company private this spring. In a May tweet, he said the deal was “on hold” and insisted the purchase could not “move forward” until Twitter provided further proof of its methods for detecting spam.
Musk committed to using more than $33 billion of his own wealth, which largely comes from his ownership of Tesla, to complete the deal. But as the stock market has been roiled by a global sell-of of tech stocks, Tesla share values plummeted in the wake of the deal. Twitter’s stock has dropped 30% since Musk made his acquisition announcement, when it traded at $52.
Anticipating more scrutiny of the role of bots in the deal, Twitter gave a Thursday morning background briefing to reporters. The core of the presentation was about how Twitter calculates its estimate that unwanted bots make up less than 5% of what it terms Monetizable Average Daily Users, those which the company feels comfortable charging advertisers to reach.
Twitter does not ban all bots, which include purposeful automated accounts, such as those that post otter pictures on the hour or the temperature in a specific location. Instead, it is looking for indicators that include mass creation accounts or coordination among humans to artificially amplify a tweet, set of tweets or topic.
The company stressed that the firehose is not enough to understand the state of bots on the platform. Twitter alone can see all the private data, including the phone numbers or email addresses used to register accounts, which would corroborate whether an account is fake. Other critical information includes the IP address and the software configurations of the device using each account, which can pinpoint a single machine behind multiple personas.
Such statements appeared aimed at heading off declarations by Musk that of the firehose of tweets he has received, a large percentage seemed automated or coordinated. Indeed, Musk’s Friday night termination notice claimed that Twitter had not been provided him enough data about how it samples the user base.
Twitter’s experts acknowledged that individual user might feel that much more than 5% of their feed is unwanted content. That is, in part, because the company is measuring and disclosing problematic accounts, not their activity or impressions — so a small number of accounts might have a large footprint of views, especially among spam-heavy topics like crypto. Many others have questioned Twitter’s estimate in the past, including numerous academics.
Politicians and advocacy groups are closely scrutinizing disputes between Musk and the company because they recognize the deal’s outcome could have broad implications on the future of elections and political discourse.
Musk has said he would reverse the company’s ban on former president Donald Trump, which Twitter instituted shortly after the Jan. 6 attack on the U.S. Capitol, citing the “risk of further incitement of violence.” His plans have been celebrated by conservatives, who accuse the company of censoring political speech, and impugned by liberals, who say his self-proclaimed free-speech absolutist positions could allow harassment and misinformation to run rampant on the platform.
A left-leaning watchdog group said Musk’s filing highlights why the deal has been fraught from the start. “While the fallout from Musk’s latest move still unfolds, one thing is clear: this chaotic crusade is nothing short of a five-alarm fire drill,” said Accountable Tech Co-Founder and Executive Director Nicole Gill in a statement. “Our information ecosystem, safety, and democracy cannot remain at the whim of unaccountable billionaires — whether it’s Elon Musk or anyone else.”
Meanwhile, conservatives said the blow-up supported their growing push to regulate content moderation of social media at both the state and national level. “The richest man in the world couldn’t even pull this off,” said Kara Frederick, the director of the Tech Policy Center at the conservative Heritage Foundation, in a Fox News interview Friday night. “It’s time to start talking about policy solutions.”
One of the Twitter employees said there have been discussions within the company about conservatives’ concerns with the platform, which employees are working to address, regardless of the outcome of the sale.
Still, the public debacle is unlikely to settle down.
“It was a political firestorm that Musk inserted himself into and now there’s going to be many of twists and turns again,” Ives said. “You can’t put the genie back in the bottle.”
Friday, July 08, 2022
Elon Musk Twitter takeover deal in ‘serious jeopardy’ | Twitter | The Guardian
Elon Musk Twitter takeover deal in ‘serious jeopardy’
"Washington Post says Musk team has stopped certain funding discussions as Tesla CEO questions spam account figures
The planned takeover of Twitter by Elon Musk is in “serious jeopardy”, according to a report, sending shares in the company 4% lower in after-hours trading on Wall Street.
Musk’s team has stopped certain discussions around funding for the $44bn deal, according to a report in the Washington Post, citing three people familiar with the matter. The report said Musk had concluded that Twitter’s figures on spam accounts – a bone of contention in the deal – were not verifiable.
Twitter executives defended their spam policy on Thursday, citing a specialist team and automated processes that weed out 1m fake accounts a day, but the report stated that access to the company’s feed of public tweet data had still failed to satisfy Musk. Twitter has stated consistently that fewer than 5% of its daily active users are spam accounts – a figure that Musk doubts openly.
The report said a “change in direction” from Musk was likely to come soon, indicating that he will follow through on threats to attempt to walk away from the agreed deal.
However, legal experts said the world’s richest man, who is also Tesla’s chief executive, would struggle to terminate the takeover without a legal fight. The agreement to buy Twitter contains clauses that include seeking “specific performance”, which means asking a court in Delaware – the US state that has jurisdiction over the deal – to order Musk to carry out the deal at the agreed price of $54.20 a share. Shares were priced at $37.10 in after-hours trading.
“Eventually, the Twitter board will tire of the shenanigans and will file a suit for specific performance in Delaware,” said Brian Quinn, an associate professor at Boston College law school.
Twitter can also demand a $1bn break fee from Musk if he attempts to renege on the agreement. However, signs of a legal strategy for backing out emerged last month when Musk’s lawyers sent a letter to Twitter warning that arefusal to cooperate over the spam account issue represented a “material breach” of the agreement. Musk’s legal team is arguing that failure to provide information about false accounts breaches a covenant in the agreement, a promise to act in a certain way during the sale process, which would allow him to walk away from the deal.
Twitter has subsequently provided data for its 500m daily tweets to reassure Musk but the Washington Post report indicates he has not been satisfied with the results of his team’s subsequent analysis.
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Carl Tobias, the Williams chair in law at the University of Richmond, said the deal being in reported “jeopardy” was the latest iteration of buyer’s remorse for Musk.
“The dustup over bots seemed to be pretextual to avoid having to forfeit the $1bn breakup fee. Thus, for weeks, Musk seemed to be saying that he was not comfortable with the deal and he now appears to be attempting to back out of the deal.”
A Twitter spokesperson said: “Twitter has and will continue to cooperatively share information with Mr Musk to consummate the transaction in accordance with the terms of the merger agreement. We believe this agreement is in the best interest of all shareholders. We intend to close the transaction and enforce the merger agreement at the agreed price and terms.”