Twitter shareholders accuse Musk of manipulating stock amid $44B takeover bid

Twitter has lost $8 billion in value since the buyout was announced, according to the lawsuit

A group of Twitter shareholders has filed a class-action lawsuit in the United States District Court of the Northern District of California against Tesla CEO Elon Musk, accusing the billionaire of manipulating the company's stock through his statements and tweets about his $44 billion acquisition. 

Ticker Security Last Change Change %
TWTR TWITTER INC. 37.40 -0.40 -1.06%

In April, Twitter's board accepted the deal for Musk to take the social media giant private at $54.20 per share. However, on May 13, Musk said the deal was temporarily being put on hold as he awaited details supporting Twitter's internal estimate that spam and fake accounts make up less than 5% of the platform's users. 

Musk, who has vowed to crack down on Twitter's spam bots, has said he believes at least 20% of its users are spam or fake accounts and has said he would be willing to renegotiate the deal for a lower price proportionate to the total percentage.

Twitter CEO Parag Agrawal said the company was "working through" the transaction at its annual shareholder meeting Wednesday but declined to comment further due to "regulatory and other reasons." The deal is expected to close in 2022.

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Musk & Twitter headquarters

Twitter headquarters is seen in San Francisco Oct. 27, 2021.  (Tayfun Coskun/Anadolu Agency via Getty Images / Getty Images)

The shareholders argue that Musk was "well aware" prior to his purchase that Twitter had a certain amount of spam and fake accounts and that the company had entered a $809.5 million settlement in September 2021 related to allegations that it overstated its user numbers and growth rate. They also emphasize that there is nothing in the buyout contract that allows Musk to put the deal on hold due to the spam and fake accounts. 

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"Musk’s statement was misleading because it stated or implied that Musk’s obligation to consummate the buyout was conditioned on his satisfaction with due diligence to determine whether ‘spam/fake accounts do indeed represent less than 5% of users,’" the lawsuit states

"This was false because Musk had specifically waived detailed due diligence as a condition precedent to his obligations under the buyout contract. Musk had and has no right to cancel the buyout based on any results from due diligence concerning the number of spam/fake accounts at Twitter." 

Twitter

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The shareholders allege Musk has made statements, sent tweets and engaged in conduct designed to create doubt about the deal and drive Twitter's stock down as a way to either back out of the purchase or renegotiate the buyout price by as much as 25%. 

They argue that Musk's actions have "substantially harmed" the company's employees and "encouraged other market participants to short Twitter’s stock."

In addition, they claim Musk saved approximately $156 million by delaying the disclosure of his 9.2% stake in the company in order to buy Twitter stock at an "artificially low price, in violation of the California Corporations Code." 

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According to the lawsuit, Twitter has lost $8 billion in value since the buyout was announced. The filing also claims that the Twitter deal's financing is in "major peril" due to Tesla's stock dropping more than 35% during the same period. 

Musk's initial plan involved $21 billion in equity financing and $25.5 billion in loans. Approximately $12.5 billion in margin loan financing was pledged against Musk's Tesla shares. The margin loan financing was later reduced from $12.5 billion to $6.25 billion, while his equity financing increased to $27.25 billion. 

On Wednesday, Musk pledged an additional $6.25 billion in equity financing to fund his bid, bringing the equity portion of the deal to $33.5 billion and eliminating the margin loan financing.

Ticker Security Last Change Change %
TSLA TESLA INC. 673.42 -12.05 -1.76%

The suit is seeking an unspecified amount of punitive and compensatory damages. A spokesperson for Musk did not immediately return FOX Business' request for comment.