Twitter’s subpoenas offer clues in court battle against Musk
Twitter has sent dozens of subpoenas in recent days to the banks and investors that were backing Elon Musk in his bid to acquire the company, while also seeking more information about technology industry personalities who are considered close to Musk.
The subpoenas are part of efforts to help determine whether Musk had quietly abandoned his deal to acquire Twitter even before he told it of his plans to do so, which would breach his contract with the company, said two people who requested anonymity because the discussions were private.
Under the terms of the deal, Musk must use “reasonable best efforts” to close the sale, including securing debt financing for the $44 billion purchase. But Twitter claims in a lawsuit against Musk in Delaware Chancery Court that he appeared to have abandoned efforts to complete his financing, contravening the agreement.
Musk, who is one of the world’s richest men, signed commitment letters with a number of Wall Street banks, led by Morgan Stanley, for a total of $13 billion in debt financing. He later brought in Silicon Valley investors, including the venture capital firm Andreessen Horowitz, to provide about $7 billion.
In subpoenas sent to investment banks working for Musk, including Morgan Stanley, Barclays and Bank of America, Twitter demanded information related to his efforts to consummate his debt financing, including his expected timeline for doing so. Twitter also is requesting information about Musk’s decision to scrap his loan against his Tesla shares to help finance the deal.
Musk had originally planned to take out a roughly $12 billion loan against his Tesla stock. But shares of the electric-vehicle maker plummeted in the weeks after he signed the deal, making such a loan considerably more risky.
Twitter also asked for more information about any analysis that banks have done at Musk’s instruction about the number of fake users on its platform. He has cited his concerns about fake accounts on Twitter as a reason he wants to withdraw his offer.
What Musk’s bankers demanded — and why — could be crucial for the deal. Twitter’s ability to sue Musk to force him to close the deal, under its “specific performance clause,” is voided if his debt financing falls apart. But that escape works only if the banks, which have signed commitment letters, walk away independently — not if Musk prods them.
“The Delaware courts themselves are very wary about people who basically have their fingerprints all over self-sabotage,” said Eric Talley, a professor of corporate law at Columbia Business School.
Representatives for Morgan Stanley and Barclays declined to comment. A spokesperson for Bank of America did not respond to a request for comment.
Musk filed a response to Twitter’s lawsuit Friday, though it is temporarily sealed to the public while he and Twitter negotiate which parts to redact. His arguments justifying his decision to walk away from the deal so far have focused on the company’s public disclosures about bots and fake accounts.
His lawyers have implied that those disclosures were materially misleading, which could give Musk grounds to back out of the deal; Twitter’s lawyers have asked what, exactly, was misleading.
Twitter’s legal outreach over the past week also sought more information about conversations with a number of the Silicon Valley heavyweights Musk is known to be close to. That information could shed further light into the evolution of his thinking about a deal, once he began to send tweets implying he might want to back out or seek a lower price.
In a subpoena issued to Valor Equity Partners, the investment firm founded by Antonio Gracias, a longtime friend of Musk’s, Twitter’s lawyers sought more information about conversations with Chamath Palihapitiya, the chief executive of Social Capital, and David Sacks, a general partner at the investment firm Craft Ventures, among others.
Both Palihapitiya and Sacks were at a private conference in which Musk expressed doubt about Twitter’s disclosures concerning its number of fake accounts.
A spokesman for Palihapitiya declined to comment. A spokeswoman for Sacks did not respond to a request for comment.