Twitter Makes Its Case Against Musk

Hi all, it’s Sarah Frier in San Francisco. Twitter laid out all the reasons why Elon Musk can’t legally walk away from his $44 billion deal. [View in browser]( [Bloomberg]( Hi all, it’s Sarah Frier in San Francisco. Twitter laid out all the reasons why Elon Musk can’t legally walk away from his $44 billion deal. But first... Today’s must-reads: • Peloton will stop in-house bike production to [help cut costs]( • Google says it will slow the [pace of its hiring]( • LianLian DigiTech, a rival to Jack Ma’s Ant, [seeks pre-IPO funding]( at a $3 billion value A man in a rush Elon Musk was in such a hurry to sign a deal to buy Twitter Inc., he made a number of concessions during negotiations that are coming back to haunt him now that he’s seeking to scrap the acquisition. Here’s a sampling of the “seller-friendly” conditions Musk agreed to in the final merger accord, [according to a lawsuit]( Twitter filed Tuesday in Delaware Chancery Court: The company would have the right to make major hiring and firing decisions. The billionaire would waive any financial conditions to closing the deal. Twitter would be entitled to timely updates from Musk about the progress of his financing efforts. The buyers could only back out of the agreement in the case of a material adverse effect, a high bar that excludes issues like market volatility or industry challenges. In its suit, Twitter says Musk has reneged all of these points. The company is now asking the court for something called “specific performance,” to force Musk to go through with the purchase he says he’s terminating, which they suggest Musk is doing because a decline in the markets shrank his wealth. Throughout the filing, Twitter outlines how Musk was in a rush to get the deal done—on the one hand making threats about selling his shares if the board didn’t agree, and on the other vowing to make the terms of the transaction favorable to Twitter. “He delivered a letter to the board repeating that his $54.20 per share offer was ‘best and final,’ threatening once more to sell all of his shares if his bid were rejected, and saying he would propose a ‘seller-friendly’ merger agreement to be signed before the market opened the next day,” according to Twitter’s lawsuit. “Musk’s counsel sent over a draft agreement, reiterated that Musk’s offer was not contingent on any due diligence, and underscored that the form of the proposed agreement was ‘intended to make this easy on all to get to a deal asap.’” That put Twitter in a strong negotiating position. The company says it now knows “the deal is backed by airtight debt and equity commitments,” and the “defendants, including Musk, have a ‘hell-or-high-water’ obligation to close on their financing commitments for the transaction.” Beyond that, Twitter’s lawyers wrote, “the closing conditions are few.” Given the deal’s stringent conditions, in order to back out Musk would need to find a “materially adverse effect,” which was narrowly defined by the agreement – it can’t be a change in market conditions, nor any change to Twitter stock price, and—crucially—it can’t be anything disclosed in US Securities and Exchange filings prior to the agreement. The company has estimated the number of bots on its social network in those filings for years; the seller-friendly concessions make it harder for Musk to get away with claiming, as he has, that Twitter breached the deal agreement by failing to hand over more data on bots. Musk, in his deal termination letter, also claimed that Twitter breached its agreement by firing some employees and instituting a hiring freeze. But “Twitter specifically negotiated for the right to terminate employees, including executives, without first having to obtain Musk’s consent,” the lawsuit says. “Musk had notice back in early May of many of the actions about which he now complains for the first time.” Twitter went the extra mile to negotiate an agreement that would be airtight because it “had been buffeted by Musk’s reversals before,” according to the suit. Musk had agreed to join Twitter’s board in April before changing his mind and deciding to buy it instead. “For the benefit of stockholders and employees, the board needed assurance that this agreement would stick. It received that assurance in the terms it was able to negotiate.” A Delaware judge will have to make the call on whether Twitter’s legal position is as strong as the company says it is. If Twitter gets its way, and forces Musk to fulfill his contractual obligations, it may be the best thing for shareholders, money-wise. Twitter stock closed on Tuesday at $34.06, far below the $54.20 per share Musk could be required to pay. Still, in that scenario Twitter would end up controlled by a man the company has just portrayed as a liar who thinks he’s above the law, who has operated in bad faith and irreparably destroyed shareholder value. The beleaguered company would be in the hands of someone who, according to Twitter, wrongly believes he “is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away.” If Twitter prevails in court, Musk will still be able to do most of those things -- but not the last one.—[Sarah Frier](mailto:sfrier1@bloomberg.net) The big story A Utah-based startup is mining the Chinese-language internet to try identifying US technologies at risk if being stolen. The company, Strider, [also says it can pinpoint]( the people who are most motivated to conduct that kind of intellectual property theft on China’s behalf. Civil liberties advocates aren’t so sure. What else you need to know A close look at how WeChat emerged as China’s most beloved, and feared, [surveillance tool](. [Early spending]( on Amazon’s Prime Day topped expectations Food-delivery startup Gopuff is [cutting staff and closing warehouses](to save money in uncertain economic times. Follow Us More from Bloomberg Dig gadgets or video games? [Sign up for Power On]( to get Apple scoops, consumer tech news and more in your inbox on Sundays. [Sign up for Game On]( to go deep inside the video game business, delivered on Fridays. Why not try both? Like getting this newsletter? 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