Elon Musk is trying to buy Twitter at a cheaper price and now he’s being sued.
Company shareholders have filed a class action lawsuit against Elon alleging unjust enrichment, false statements and stock manipulation in order to lower the price or walk away from the $44 billion deal he’d agreed to.
Musk had originally financed the purchase in part by pledging billions of dollars in Tesla stock as collateral for a bank loan. That became a problem as Tesla stock plunged in the 30 days after the announcement, says the suit (read it here) in U.S. District Court in the Northern District of California. As Tesla stock dropped, “Musk begins to make false statements and engage in market manipulation of Twitter stock,” including by announcing that the deal was “on hold.”
The suit, filed Wednesday, also revisits the fact that Musk didn’t disclose his 9.2% stake in San Francisco-based Twitter when he was required to – something the SEC is investigating – and the unusual way events unfolded. That is, Musk first agreed to join the Twitter board as an ally, then reversed that decision in favor of a takeover bid and threatened to go hostile if Twitter wouldn’t accept.
Musk and Twitter inked the $54.20-a-share cash deal in late April. It must be approved by Twitter shareholders at a special meeting but no date for that has been announced. Musk reportedly agreed to waive due diligence – or a deep dive into a company’s business that is the norm in big acquisitions. Several weeks later, he zeroed in on spam, or bot, accounts on the service, said he didn’t believe Twitter’s accounting of them and the deal was “temporarily on hold” until he had more information. That drove down Twitter’s stock price “in order to create the leverage that Musk hoped to use to either back out of the purchase or re-negotiate the buyout price,” the suit alleges.
It described Musk as having “a unique and multi-billion dollar problem Musk pledged his Tesla stock as collateral for a $12.5 billion loan to finance the buyout of Twitter, however Tesla’s shares have declined by over 37% since the announcement of the buyout.”
The shareholder leading the action is William Heresniak from Virginia. Twitter is named as a defendant along with Musk.
In an SEC filing also on Wednesday, Musk extricated Tesla from the equation, committing to provide an additional $6.25 billion in equity financing for the buyout – for a total of $33.5 billion – eliminating the margin loans against Tesla stock that were part of his original financing.
This whole purchase fiasco is a mess.