Musk allegedly threatened Twitter with a 'hostile tender offer' via text to Chairman Bret Taylor

FACTUAL ALLEGATIONS

II - Musk offers to buy Twitter

24. On April 13 — four days after reversing course on the board seat — Musk texted Taylor that he planned to make an offer to acquire all of Twitter. His unsolicited offer, conveyed by letter later that day, was accompanied by a threat:

I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced. My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder.

25. The following day, on April 14, Musk announced his offer publicly and noted that it was conditioned on customary business due diligence and financing. At a public event the same day, Musk — whose enormous personal wealth exceeds the capital of most public companies — boasted that he could “technically afford” to purchase Twitter outright.

26. Also on April 14, the Twitter board met to discuss Musk’s proposal. It established a transactions committee composed of independent directors Taylor, Lane Fox, and Patrick Pichette to evaluate the proposal, oversee negotiations, and explore strategic alternatives. The board was assisted in its review by Goldman Sachs and J.P. Morgan as financial advisors, and Simpson Thacher as independent counsel.

27. Faced with Musk’s rapid accumulation of Twitter stock and take-it-orleave-it offer, and concerned that he might launch a hostile tender offer without notice, the board adopted a customary shareholder rights plan to protect its stockholders from “coercive or otherwise unfair takeover tactics.” The board took this action to reduce the likelihood of a takeover without payment of an appropriate control premium and to ensure that the board had sufficient time to make an informed judgment on Musk’s or any other offer. Under the rights plan’s terms, a single investor or group’s acquisition of more than 15% of the company’s outstanding common stock without board approval gives other stockholders the opportunity to acquire additional stock at a considerable discount. The plan was adopted and announced on April 15, 2022.

28. The board’s concerns proved well-grounded. Musk began making alltoo-obvious public references to a hostile tender offer:

29. At the same time, Musk worked to strengthen the offer he had made and might make by tender. By April 20, he had personally committed $21 billion in equity financing and lined up $25.5 billion of committed debt financing, with $12.5 billion of that secured by hisTesla stock.

30. Having obtained these commitments, Musk announced in an April 21, 2022 securities filing that his offer was no longer conditioned on financing or subject to due diligence:

At the time of delivery, the Proposal was also subject to the completion of financing and business due diligence, but it is no longer subject to financing as a result of the Reporting Person’s receipt of the financing commitments . . . and is no longer subject to business due diligence.

Musk proclaimed himself prepared to begin negotiations “immediately,” and confirmed he was “exploring whether to commence a tender offer.”

31. On Saturday, April 23, 2022, Musk asked to speak with Twitter representatives about his offer. At the direction of the transactions committee, Taylor engaged with Musk, who reiterated that his offer was “best and final” and threatened once again to take it to Twitter’s stockholders directly if the board did not engage immediately.

32. The following day, on Sunday, April 24, 2022, Musk tried again to force Twitter’s hand. 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. 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.”

33. The agreement was negotiated through the night and, in the process, became even more seller-friendly. Among the provisions not contained in Musk’s proposal but included at Twitter’s insistence were an undertaking by defendants, including Musk, to “take or cause to be taken . . . all actions and to do, or cause to be done, all things necessary, proper or advisable” to obtain the financing (already committed) to consummate the transaction, Ex. 1 § 6.10(a); a clear disclaimer of any financing condition to closing, id. § 6.10(f); and a right on Twitter’s part to request and promptly receive updates from Musk about his progress in obtaining financing, id. § 6.10(d). These provisions ensured that financing would be no obstacle to closing and that the company would have the right to stay informed of Musk’s progress in arranging his financing.

34. Twitter also negotiated for itself a right to hire and fire employees at all levels, including executives, without having to seek Musk’s consent. Musk’s initial draft of the merger agreement would have deemed the hiring and firing of an employee at the level of vice president or above a presumptive violation of the ordinary course covenant absent Musk’s consent. Twitter successfully struck that provision before signing.

35. Twitter further negotiated to narrow the circumstances under which defendants could escape the deal by claiming a “Company Material Adverse Effect.” In addition to excluding, for example, market-wide and industry-wide effects and circumstances and declines in stock price and financial performance, the final definition excluded matters relating to or resulting from Musk’s identity or communications, “performance” of the agreement, and any matter disclosed by Twitter in its SEC filings other than the “Risk Factors” and “Forward-Looking Statements” sections of those disclosures. Id. Art. I.

36. Finally, and critically, Twitter negotiated for itself a robust right to demand specific performance of the agreement’s terms that encompassed the right to compel defendants to close the deal, and ensured that Musk personally was bound by that provision (among others). Id. § 9.9(a)-(b), Preamble.

37. At a board meeting on April 25, 2022, Goldman Sachs and J.P. Morgan each presented their fairness opinions, and the board discussed the agreement. The board ultimately approved the merger agreement and decided to recommend stockholder approval, both because the price was fair to stockholders and because the merger agreement promised a high level of closing certainty. Twitter had taken Musk’s claimed “seller friendly” draft agreement and secured other key concessions to make it even more so. Not only were there no financing or diligence conditions, but Musk had already secured debt commitments that together with his personal equity commitment would suffice to fund the purchase.

38. Twitter had been buffeted by Musk’s reversals before. 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.