Florida Pension Fund Sues to Block Musk Takeover of Twitter

May 6, 2022 by Dan McCue
Florida Pension Fund Sues to Block Musk Takeover of Twitter
FILE - The Twitter icon is displayed on a mobile phone in Philadelphia, Pa., on April 26, 2017. Twitter said in a statement Friday, April 15, 2022, that its board of directors has unanimously adopted a “poison pill” defense in response to Tesla CEO Elon Musk’s proposal to buy the company and take it private. (AP Photo/Matt Rourke, File)

WILMINGTON, Del. — A Florida pension fund filed a complaint in Delaware’s Chancery Court on Friday asking a judge to rule Twitter can’t close its deal with Elon Musk until, potentially, 2025.

The complaint filed by the Orlando, Florida, Police Pension Fund is based on the fact Musk, who has proposed to buy Twitter for $44 billion, has close ties to both Twitter co-founder Jack Dorsey and Morgan Stanley, and that together they own 20.8% of Twitter’s outstanding voting stock.

The plaintiffs argue that given this fact, Section 203 of Delaware’s General Corporation Law requires the Twitter board to hold a vote in which Musk must get approval from two-thirds of the voting shareholders to close the deal.

The only other alternative under the law, they argue, is for Musk and Twitter to wait until 2025 to consummate the sale.


Why?

Well, though the legal language can be quite arcane, it comes down to the definition of the phrase “interested stockholder” and when one becomes one.

Section 203 of the Delaware law defines an interested stockholder as an owner of more than 15% of a corporation’s outstanding stock. 


According to published reports, Musk started buying Twitter shares in January and owned about 9.6% of the company’s outstanding voting stock when the board approved the takeover.

Though 9.6% falls far short of the 15% threshold, the pension fund argues that the court must also take into account the complicated relationships between the players in the deal and any agreements that may have been made between them.

Morgan Stanley owns 8.8% of Twitter’s stock, while Dorsey owns 2.4%. The complaint goes on to say there may be understandings with scores of other shareholders who will benefit from the deal closing.

But even leaving that latter group aside, the pension fund says, Musk, Morgan Stanley and Dorsey’s shares alone total more than 15% of Twitter’s overall shares.

The plaintiffs also note that by filing a Form 10-K with the Securities and Exchange Commission in February, Twitter reconfirmed that it hasn’t opted out of Section 203.

That means, if you buy the pension fund’s rationale, Musk has to be considered an interested stockholder … and, absent the outcome of the shareholder vote described above, he’ll be legally required to remain an “interested shareholder” for three years before the deal closes.


The plaintiff pension fund also accuses Twitter’s board of directors of breaching their fiduciary duties when it accepted Musk’s offer on April 25.

Dan can be reached at [email protected] and @DanMcCue

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