Photo: Billy Lam/National Geographic/edited by autoevolution
Getting the money to buy Twitter is not the only obstacle in Elon Musk’s way toward ownership of this social media. A Twitter investor is suing both the Tesla CEO and this social media because of the deal.
The Orlando Police Pension Fund said that Elon Musk could not proceed with the purchase without the consent of the holders of at least two-thirds of the stocks not owned by the Tesla CEO. Ironically, the delay would have to do with Musk’s initial purchase of Twitter shares on April 4.
At the time, the Tesla CEO said he bought a 9.1% stake in the company. According to the lawsuit, that made him an “interested stockholder.” Section 203 of the Delaware General Corporation Law determines that stockholders with more than 15% of shares cannot engage in certain business combinations without the approval of at least two-thirds of the other stockholders.
If you are following this with attention, you’ll argue that Musk had “only” 9.1% of the voting shares. The Orlando Police Pension Fund corrects that by stating that he actually has 9.6% of the shares and also that the Tesla CEO started buying Twitter stock in January 2022. That alone would not make him an interested stockholder.
The catch lies in the part of Section 203 that states that you do not have to personally own more than 15% of the shares for that classification to apply. That can also happen if you have “any agreement, arrangement or understanding for the purposes of acquiring, holding, voting [], or disposing of such stock with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such stock.”
The Orlando Police Pension Fund claims that the Tesla CEO has an AAU (agreement, arrangement, or understanding) with Morgan Stanley – which owns approximately 8.8% of the shares – and Jack Dorsey (he holds 2.4% of Twitter’s stocks). If you add the stake that the Twitter investor said Musk owns, all three combined would have 20.8% of the Twitter shares. Even if you consider only 9.1%, that would still be 20.3%,
If the judge accepts these allegations, Musk will have to wait three years after becoming an interested stockholder to complete the deal. In other words, he could only buy Twitter by May 2025. Until everything is settled, the Twitter deal cannot proceed.
The lawsuit was filed as a class action representing all other Twitter stockholders. Apart from postponing the deal, it also asks the court to recognize that Twitter’s board breached its fiduciary duties and the award of “the costs and disbursements of this action, including reasonable attorneys’ fees.” Reuters was the first to report the lawsuit. Neither Musk nor Twitter replied to its requests for comment.
Although it all may seem of little importance to Tesla, the EV maker’s investors are also worried that Musk will sell more of his shares, making the stock price drop even more than it already has since the Tesla CEO announced his intentions. Shifting his focus from Tesla is also a strong point of criticism, especially in a moment in which the EV maker still has so much to solve.
At the time, the Tesla CEO said he bought a 9.1% stake in the company. According to the lawsuit, that made him an “interested stockholder.” Section 203 of the Delaware General Corporation Law determines that stockholders with more than 15% of shares cannot engage in certain business combinations without the approval of at least two-thirds of the other stockholders.
If you are following this with attention, you’ll argue that Musk had “only” 9.1% of the voting shares. The Orlando Police Pension Fund corrects that by stating that he actually has 9.6% of the shares and also that the Tesla CEO started buying Twitter stock in January 2022. That alone would not make him an interested stockholder.
The catch lies in the part of Section 203 that states that you do not have to personally own more than 15% of the shares for that classification to apply. That can also happen if you have “any agreement, arrangement or understanding for the purposes of acquiring, holding, voting [], or disposing of such stock with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such stock.”
The Orlando Police Pension Fund claims that the Tesla CEO has an AAU (agreement, arrangement, or understanding) with Morgan Stanley – which owns approximately 8.8% of the shares – and Jack Dorsey (he holds 2.4% of Twitter’s stocks). If you add the stake that the Twitter investor said Musk owns, all three combined would have 20.8% of the Twitter shares. Even if you consider only 9.1%, that would still be 20.3%,
If the judge accepts these allegations, Musk will have to wait three years after becoming an interested stockholder to complete the deal. In other words, he could only buy Twitter by May 2025. Until everything is settled, the Twitter deal cannot proceed.
The lawsuit was filed as a class action representing all other Twitter stockholders. Apart from postponing the deal, it also asks the court to recognize that Twitter’s board breached its fiduciary duties and the award of “the costs and disbursements of this action, including reasonable attorneys’ fees.” Reuters was the first to report the lawsuit. Neither Musk nor Twitter replied to its requests for comment.
Although it all may seem of little importance to Tesla, the EV maker’s investors are also worried that Musk will sell more of his shares, making the stock price drop even more than it already has since the Tesla CEO announced his intentions. Shifting his focus from Tesla is also a strong point of criticism, especially in a moment in which the EV maker still has so much to solve.
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