The Elon Musk Twitter takeover now has its first major legal challenge, after the multi-billionaire was sued by a Florida pension fund.
GRUENHEIDE, GERMANY - AUGUST 13: Tesla CEO Elon Musk talks during a tour of the plant of the future foundry of the Tesla Gigafactory on August 13, 2021 in Grünheide near Berlin, Germany. The US company plans to build around 500,000 of the compact Model 3 and Model Y series here every year.
According to Engadget, the fund is arguing that Musk's Twitter deal cannot legally close until 2025 due to the former's stake in the company. Aside from that, the lawsuit also alleges that the social media giant's board of directors have "breached their fiduciary duties" after they said yes to the deal.
But it's not just the Tesla CEO and Twitter being sued. Both current CEO Parag Agrawal and former CEO/founder Jack Dorsey are also implicated in the lawsuit, which was filed by the Orlando Police Pension Fund with the Delaware Chancery court.
In a Reuters report, the pension fund argued that Elon Musk's Twitter deal - specifically how fast it went through the board - is prohibited by Delaware law. This is due to how the polarizing billionaire having prior agreements with other big shareholders of Twitter, which includes Dorsey and Musk's financial adviser Morgan Stanley.
As per the pension fund's lawyers, the problematic nature of the deal lies with Musk's pact with both Morgan Stanley and Dorsey. Together, the three entities own a total of 20.8 percent of Twitter's stocks. This, the lawyers argue, is what helped the deal advanced rather too quickly.
The combination of Musk, Dorsey, and Morgan Stanley's resources make them an "interested shareholder" as per the law known as Section 203. The law states that shareholders who own over 15 percent of a company cannot push through with a merger without getting the approval of the remaining two-thirds of the company's shareholders.
Without the said approval, the deal cannot be finalized for three more years. Section 203 is part of Delaware corporate law, which you can read about in this link from Hardvard Law.
For now, the ball is in Elon's, Jack's, and Morgan Stanley's park.
Read also: Elon Musk Denies He Bought Twitter Because of Former President Donald Trump
What's Going To Happen Now?
As previously mentioned, this is the first major legal battle that Elon Musk's Twitter deal faces. It is not known what happens next, but the lawsuit will likely force the Tesla CEO to rethink his recent decision involving making several details of the deal public.
For now, the Twitter takeover remains in limbo. But that doesn't stop Musk from baring his grand plans for the platform. One of his most recent proclamations says that he plans to take the social media company public again in as little as three years, after his initial choice to take it private.
The decision, as per Fortune, is typical of people who wants to make massive, sweeping changes to a company in order to make it more profitable in the future. And Twitter, despite being the social media giant that it is, has actually been losing a lot of money in recent times.
Twitter's revenue drop basically opened the way for competitors (specifically TikTok) to post sky-high revenue numbers. But Musk still believes in the platform's potential, which is perhaps one of the reasons why he wanted to take it private.
This is a developing story.
Related: Elon Musk Wants Government Entities and Enterprises to Pay for Twitter
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Written by RJ Pierce
