A Florida Police Pension Fund has filed a lawsuit to stop Elon Musk’s takeover of Twitter – for now anyway.
On Friday, May 6th, the case known as Orlando Police Pension Fund v. Twitter was filed in a Delaware court. The suit alleges that the deal between the Tesla CEO and the social media platform is in violation of Section 203 of the Delaware General Corporation Law which is a Delaware statute that prevents shareholders (along with their affiliates and associates) from engaging in a tender or exchange offer for a period of three years after buying more than 15 percent of the company’s stock unless certain criteria are met.
In simpler terms, if a shareholder purchases greater than 15 percent, but less than 85 percent, of the company’s stock, he or she is considered an interested shareholder. This type of stockholder cannot engage in certain business combinations with the corporation for three years after having been deemed an interested shareholder unless three criteria are met.
The class-action suit alleges the Twitter board breached its “fiduciary duty” to other stockholders by allowing the sale. And an unspoken deal between Musk, Twitter’s founder Jack Dorsey, and Morgan Stanley – who own 2.4 and 8.8 shares, respectively – added to Musk’s 9.2 percent, and, in doing so, made Musk an “interested shareholder,” a position he would have to hold for a minimum of three years.
Section two of the complaint filed with the Delaware Delancey Court states:
“Musk began acquiring Twitter shares in January 2022 and owned approximately 9.6% of Twitter’s outstanding voting stock when the Board approved the Proposed Takeover. In connection with his efforts to acquire Twitter, Musk also had an ‘agreement, arrangement or understanding’ within the meaning of Section 203 with at least two other significant beneficial owners of Twitter’s outstanding voting stock: (i) Morgan Stanley, which beneficially owns approximately 8.8% of Twitter’s outstanding voting stock and serves as Musk’s financial adviser and primary financier in connection with the Proposed Takeover; and (ii) Twitter co- founder, former CEO, and director Jack Dorsey (‘Dorsey’), who beneficially owns approximately 2.4% of Twitter’s outstanding voting stock, encouraged Musk to take Twitter private through the Proposed Takeover, and appears likely to receive equity in the newly-private Company following the Proposed Takeover should it close.”
If the court rules in favor of the plaintiffs, it will push back the takeover until at least 2025. But a lot can happen between now and then.
Musk has another class-action suit pending in the State of New York for not disclosing his acquisition of additional shares of Twitter in the time mandated by the SEC. By doing so, Musk cost Twitter shareholders who sold their interest prior to his announcement around $165 million. Musk is also under two SEC investigations – one for violating a prior settlement agreement that required the Twitter-happy CEO to have an attorney approve his tweets, and the other for insider trading.
A settlement was reached when Musk was found to have manipulated the stock price of Twitter with his social media posts. It was a settlement that cost Musk and Tesla $40 million.
The current lawsuit against Musk is just another battle in a long history of the Tesla CEO running afoul of rules and regulations pertaining to his business practices and acquisitions. There seems to be a lot of spaghetti being thrown at the wall when it comes to Elon Musk, let’s see if some of it finally sticks.
Twitter CEO Parag Agrawal and founder Jack Dorsey are also named as defendants.
Follow Ty Ross on Twitter @cooltxchick