As we previously discussed on the blog, Elon Musk recently launched a hostile takeover bid for Twitter Inc., a public company listed on the NYSE in a bid to take the company private. In the first of many unexpected events, Twitter’s Board of Directors (the “Board”) then accepted Musk’s bid to buy the company on April 25. The accepted bid would have had Musk pay $54.20 in cash (USD) per share, valuing the deal at $44 Billion (USD). 

Analysts and industry insiders largely speculated the Board would reject Musk’s bid, pointing to its enactment of a “poison pill” shareholder rights plan as a tactic to prevent a hostile takeover bid. However, negotiations between Musk and the Board continued following the Board’s poison pill, with Musk ultimately providing the Board with the financing details of his offer and the Board approving the arrangement. 

Takeover bid now on hold 

Musk then announced on May 13 that his takeover bid was temporarily on hold due to the number of fake bot and/or spam accounts on the platform. According to Musk, the deal will not move forward until he has more information about automated and bot/spam accounts, and he has specified that the company must prove fewer than 5% of its user accounts are fake or bot/spam accounts.

At the same time, Musk also recently secured additional funding for the deal and increased his own personal funding of the deal from $27.25 billion in equity to $33.5 billion. Nonetheless, after Musk’s announcement of the deal being on hold, there is now speculation that he may rely on the bot/spam account issue raised to either back out of the deal or to re-negotiate a lower purchase price.

Shareholder and regulatory approvals still needed

The deal, if it moves forward, will still require both shareholder approval and regulatory approval, and had been expected to close later in 2022. The Board will likely still recommend shareholder approval, based on its acceptance of Musk’s offer, but regulatory approval of the deal may present an additional obstacle or delay. 

The United States Securities and Exchange Commission (“SEC”) also announced last week that it was looking into Musk’s disclosure of his acquisition of Twitter stock from early April. According to a letter to Musk made public by the regulator, the SEC is questioning why Musk didn’t file his required disclosure paperwork within the required deadline, as well as why he used a disclosure form for passive investors instead of the form required for activist investors who intend influence management and company policies. Musk’s conduct to date, particularly his outspoken criticism of the company’s Board and free speech policies, would most certainly put him into the latter category. 

Shareholder litigation

Other hurdles to the deal closing could also be presented by shareholder litigation. One such lawsuit was filed May 6, by a Florida pension plan naming Twitter, its Board and Musk as defendants in a bid to stop the deal from closing until at least 2025. The Orlando Police Pension Fund filed the proposed class action in Delaware Chancery Court, arguing that Musk’s proposed accelerated timing for the deal was not permitted under Delaware law. In addition to seeking to delay the deal from closing until at least 2025, the lawsuit also sought a declaration that the Board directors breached their fiduciary duties. 

Another shareholder lawsuit was filed last week in a San Francisco federal district court, alleging that Musk actively manipulated Twitter’s stock price for his own personal gain. This lawsuit claims that Musk’s conduct (his statements and his tweets about the company) since signing the purchase agreement with Twitter’s Board have negatively affected Twitter’s stock price, in order to allegedly give Musk the opportunity to renegotiate the purchase price. According to the lawsuit, Twitter lost $8 billion in value since the deal was announced.

Other potential obstacles

Twitter’s annual shareholder meeting last week didn’t address the potential takeover, although many shareholders posed questions about it to the company’s CEO. With the recent volatility of stock prices, including the sharp decline of Tesla share prices (Musk’s Tesla holdings make up a large part of his personal wealth), it remains to be seen whether this takeover will eventually close or not.

We may continue to see shareholder resistance to Musk’s bid, particularly if Twitter’s stock price continues to decline – shares of the company dropped sharply in mid-May after Musk announced that the takeover was temporarily on hold. Neither would it be unexpected to see additional shareholder litigation commenced opposing the deal, and further scrutiny from the regulator in relation to Musk’s disclosure obligations and potential allegations of stock price manipulation. On the whole, Musk’s takeover bid and all of the shareholder, regulator and company responses to it, present a fascinating array of corporate governance and regulatory legal issues to dissect. It is anyone’s guess what further developments we may expect to see in this saga, or whether the transaction will ultimately close.  

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