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5 Takeaways From Twitter's Lawsuit Against Elon Musk

Musk agreed to buy Twitter for $44 billion, but then he changed his mind.

Elon Musk's profile picture on his Twitter page
Elon Musk is an avid user of Twitter.
Sarah Tew/CNET

Twitter came out swinging against Elon Musk for trying to back out of his $44 billion deal to buy the influential social media network.

In a lawsuit filed Tuesday in the Delaware Court of Chancery, the social media company pulled no punches, calling Musk's exit strategy a "model of hypocrisy" and "bad faith." The deal includes a $1 billion termination fee.

"Musk apparently believes that he -- unlike every other party subject to Delaware contract law -- is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away," the lawsuit said.

Twitter's lawsuit, which was widely expected, is the latest twist in the uncomfortable relationship between the social network and the world's richest man. The saga is likely to become even more complicated as bad blood between Twitter and Musk spills out in court documents. 

Now playing: Watch this: Elon Musk vs. Twitter Bots: How Big Is the Problem?
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Musk has said Twitter failed to provide him information he needed to verify the company's estimate that fewer than 5% of its 229 million daily users are false or spam accounts. The metric is important for understanding the company's ad business. Twitter denies Musk's claims and alleges he's trying to back out of the deal because the purchase has become more expensive for him after Tesla's stock price tumbled. Most of Musk's wealth is tied to his stake in his company Tesla. 

Twitter doesn't mince words in the lawsuit, painting Musk as a liar who's trying to evade a $44 billion deal for his personal gain. Here are five takeaways from the 62-page lawsuit:

It won't be easy for Musk to walk away from the deal

Twitter notes there's a high bar for ending the deal. Musk would have to show that Twitter's disclosures about bots are false and misleading and that this would likely result in a "company material adverse effect."

Even though Musk's lawyers cited a potential material adverse effect in a letter last week, proving that allegation will be tough. 

The agreement identifies changes, events and circumstances that are excluded from determining whether a material adverse effect has happened. Those exceptions include economic conditions, changes in a company's stock price and certain information Twitter discloses in regulatory filings. 

Financing and due diligence (the process of gathering or analyzing information before making a decision) also aren't conditions of closing the deal, Twitter said in the lawsuit. 

"Musk wanted an escape," the lawsuit said. "But the merger agreement left him little room."

Twitter doesn't buy Musk's arguments

Twitter also pushed back on Musk's allegations that the social network violated the agreement by failing to provide him information about automated spam accounts.

The company says Musk's exit strategy is hypocritical because one of the reasons the billionaire gave for buying Twitter was to "defeat the spam bots." When Tesla's stock fell, however, Musk began demanding more information to verify that spam wasn't a serious problem on the platform.

Twitter also said it provided Musk with data and that he was aware of the caveats to those estimates. Even though the agreement required both Musk and Twitter to share information with each other to help close the deal, those requests had to serve a "reasonable business purpose."

But Musk was making unreasonable requests "designed to try to tank the deal," the lawsuit said.

"Musk's increasingly outlandish requests reflect not a genuine examination of Twitter's processes but a litigation-driven campaign to try to create a record of non-cooperation on Twitter's part," according to the suit.

Twitter also refuted allegations that the company had breached the agreement when it fired executives, froze hiring and laid off employees. The company negotiated a right to hire and fire employees without needing Musk's consent, Twitter said.

Twitter says Musk breached the merger agreement, not the other way around

Twitter is turning the tables on Musk, alleging the billionaire violated the agreement multiple times and has no right to terminate it.

The company included a long list of Musk's alleged violations in the lawsuit.

"He has purported to put the deal on 'hold' pending satisfaction of imaginary conditions, breached his financing efforts obligations in the process, violated his obligations to treat requests for consent reasonably and to provide information about financing status, violated his non-disparagement obligation, misused confidential information, and otherwise failed to employ required efforts to consummate the acquisition," the lawsuit said.

Musk's tweets could come back to haunt him

Musk, who has more than 100 million followers on Twitter, hasn't been shy about sharing his thoughts about the social network, even after he signed the merger agreement. Now Twitter is using the billionaire's words as evidence that he breached the deal or to raise questions about his motives and character.

In May, Musk replied to Twitter CEO Parag Agrawal with a poop emoji after the executive tweeted about how the company was trying to fight spam on the platform.

Twitter said Musk's tweet was disparaging and violated a part of the agreement that barred the billionaire from tweeting remarks that disparaged the company or any of its representatives.

The lawsuit also includes tweets Musk posted after he announced he wanted to terminate the deal. One tweet included a meme with actor Chuck Norris in front of a chess board.

"For Musk, it would seem, Twitter, the interests of its stockholders, the transaction Musk agreed to, and the court process to enforce it all constitute an elaborate joke," the lawsuit said.

Twitter has concerns about why Musk wants more data

Musk keeps changing his mind about Twitter, raising questions about what he really wants.

Twitter said in the lawsuit that Musk told Agrawal and Bret Taylor, who chairs the company's board, in March that he had three ideas in mind: join Twitter's board, take the company private or start a competitor. 

Twitter offered Musk a seat on the board. Musk agreed to be on the board before changing his mind. Then he offered to take Twitter private at $54.20 per share. Now he's trying to back out of the deal. 

As Twitter tried to work with Musk on his data requests, the company also had concerns about handing over certain information to Musk, because it was "highly sensitive information and data that would be difficult to furnish and would expose Twitter to competitive harm if shared."

Still, the company tried to work with Musk on his "burdensome" requests and "bent over backwards" to address them.

"Twitter continued to try to get Musk's team what it demanded while safeguarding its customers' data and harboring very real concerns about how Musk might use the data if he succeeded in escaping the deal," the lawsuit said.