Elon Musk has used a range of tools to gain ground at Twitter. The billionaire bought the platform’s shares, became its largest shareholder, accepted a board seat (and then turned it down), and then said he would buy it for $44 billion and make it private.
He faced difficulties in each of those manoeuvres. Yet, he persisted at each turn, and is now close to buying out the micro-blogging site. But there could be more landmines on his path before he can finally take over Twitter.
A pension fund in Florida, which is also a shareholder in the company, has sued Musk and Twitter over the former’s ‘interest’ in the company. The fund filed a suit in Delaware Chancery Court last week.
According to the Orlando Police Pension Fund, Tesla boss made pacts with other prominent Twitter shareholders, including co-founder Jack Dorsey and investment bank Morgan Stanley. These agreements helped him rely on their holdings when offering to take the company private.
Musk held nearly 10% of Twitter shares when he cut these deals with other major investors. Morgan Stanley owns about 8.8% of Twitter shares and Dorsey owns 2.4%.
A pact between these large shareholders triggers a Delaware law that could significantly delay Musk’s Twitter buyout. In its complaint, the fund is asking the Delaware court to find that Musk meets the test for an “interested shareholder” and is subject to the law.
Interested shareholders are those who have enough majority to influence policy decisions at a company. The concept assumes that there is no majority shareholder. The exact amount of stock one must own to be considered an interested shareholder varies according to jurisdiction, but it is normally about 20% of the common stock.
Apart from delaying the merger, the lawsuit also seeks find whether Twitter directors breached their fiduciary duties by accepting to the deal, and a recoup of legal fees and costs.
The lawsuit comes at a time when Musk has been raising capital from several large investors to finance his Twitter buyout deal. He has raised about $7 billion, including from sovereign wealth funds, Oracle’s Larry Ellison, venture-capital firm Sequoia Capital and cryptocurrency exchange Binance, to pull off the largest leveraged buyouts ever.
Now, Musk will have to find another tool to manoeuvre and get closer to his blue bird.
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