The attempted buyout of Twitter by Elon Musk is facing a fresh new challenge in the form of a lawsuit from the Orlando Police Pension Fund, reports indicate. The case was filed on behalf of the pension fund and “all other similarly situated stockholders of Twitter, Inc.” via the Court of Chancery of the State of Delaware. And, specifically, it posits that the buyout violates Section 203 of Delaware corporate law.
What does the lawsuit against the Elon Musk buyout of Twitter claim?
Summarily, the lawsuit alleges that Mr. Musk cannot close the buyout of Twitter until at least 2025. That results, it claims, from the SpaceX- and Tesla-founder already owning too much stake in the company. And, more directly, from Mr. Musk’s stake combined with the stakes of participants funding and pushing for the buyout to go through. For instance, the suit names the former CEO of Twitter, Jack Dorsey, alongside current CEO Parag Agrawal.
The company’s board has also been placed on the official docket as defendants. That’s alongside Musk’s financial advisor, Morgan Stanley.
Section 203 of Delaware law does not allow shareholders who own more than 15-percent of the company to enter into a merger with the company without agreement from two-thirds of the remaining shareholders. According to the suit, the joint shareholdings of the defendants in the case constitute a violation of that.
Elon Musk owns 9.6-percent, while Morgan Stanley owns 8.8-percent. Due to the pact formed between Mr. Musk, Jack Dorsey — who owns 2.4-percent — and others, the deal cannot go through until 2025 if the group cannot garner the approval of two-thirds of the remaining shares. That’s according to the lawsuit. Additionally, the suit calls out Twitter’s board of directors. Effectively, saying that it is a breach of its fiduciary duties to allow the deal to go through.
What impact does the lawsuit claim?
Now, the results of the lawsuit are still very much up in the air, as of this writing. Precedence either allowing or disallowing the law to apply to these particular circumstances has not been clearly set. So the matter isn’t necessarily likely to be settled anytime soon.