Securities Suit Says Twitter’s Proposed Sale to Musk Lacks Necessary Disclosures

A lawsuit filed by a Twitter shareholder on Tuesday against the company and its board of directors says that they acted negligently by filing an incomplete and misleading proxy statement with the Securities and Exchange Commission (SEC) in connection with the proposed $44 billion acquisition of Twitter by Elon Musk. The shareholder aims to block the acquisition until shareholders get the information they need.

The complaint explains that the nature of Twitter’s business is not only operating a social media network, but also providing a suite of products that enable advertisers to promote brands, wares, and services, as well as enable advertisers to target audiences. Lastly, the platform offers monetization products for creators, including “Tips” permitting users to send small one-time payments on Twitter using various methods.

According to the shareholder, news of the deal broke by a joint buyer-seller announcement in April, providing that if approved, shareholders would receive $54.20 per share in cash. Thereafter, the defendants reportedly hired Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC to conduct financial analyses and author a fairness opinion.

This week’s Southern District of New York complaint takes issue with the proxy statement Twitter filed on June 21. It says that the financial advisors left out critical pieces of information underlying assumptions they made in outlook calculations.

In addition, their supposed use of non-GAAP (Generally Accepted Accounting Principles) financial metrics failed to paint the whole picture, the complaint says. In order to rectify their omission, the shareholder argues that Twitter must provide a “reconciliation table of the non-GAAP measures to the most comparable GAAP measures to make the non-GAAP metrics included in the Proxy Statement not misleading.”

The lawsuit is not the first filed against Twitter and Musk since the latter announced his intent to acquire the company. One suit claimed that Musk manipulated the market in order to purchase Twitter shares at a lower price while unjustifiably vilifying the company. Another said that Musk secured an unfair windfall of about $156 million by failing to timely tell the SEC and public that he exceeded the 5% ownership threshold of Twitter. 

The plaintiff in this week’s securities law action is represented by Melwani & Chan LLP.