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Twitter vs Elon Musk: All You Need to Know About the Lawsuit in the Delaware Chancery Court

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Twitter’s lawsuit to force billionaire Elon Musk to make good on his promise to buy the social media giant will be resolved in a small but powerful Delaware court that specializes in high-stakes business disputes.

Twitter has sued Musk in Delaware’s Court of Chancery in an effort to force him to complete a $44 billion (roughly Rs. 3.5 lakh crore) takeover deal reached in April.

What is the lawsuit about?

Musk, the world’s richest man, pledged to pay $54.20 (roughly Rs. 4,000) a share for Twitter but now wants to back out of the agreement. He claims the company has failed to provide adequate information about the number of fake, or “spam bot,” Twitter accounts, and that it has breached its obligations under the deal by firing top managers and laying off a significant number of employees.

Twitter argues that Musk, CEO of electric car maker and solar energy company Tesla., has operated in bad faith and is deliberately trying to tank the deal because market conditions have deteriorated and the acquisition no longer serves his interests. According to the lawsuit, the value of Musk’s shares in Tesla, which he was to draw upon to help finance the acquisition, has declined by more than $100 billion (roughly Rs. 8 lakh crore) since November.

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Either Musk or Twitter would be entitled to a $1 billion (roughly Rs. 8,000 crore) breakup fee if the other party is found responsible for the agreement failing. Twitter wants more, however, and is seeking a court order directing Musk to follow through with the deal.

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When does the trail start?

Twitter lawyers are asking the court to expedite the case. They have proposed a four-day trial starting September 19.

What is the court of chancery?

The Court of Chancery, established in 1792, traces its roots to the High Court of Chancery of Great Britain, which in turn evolved from an earlier institution in feudal England known as the King’s Chapel. The court, overseen by the lord chancellor as “keeper of the king’s conscience,” served as an alternative to the more rigid and inefficient common law courts. It held the power to offer remedies such as injunctions, estate administration, and, notably, “specific performance,” which can force a party to complete a transaction against its will.

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The 230-year-old Court of Chancery typically handles civil cases where a complainant is seeking non-monetary damages. Such cases can include disputes over property boundaries and land purchases, guardianship appointments, and estates, trusts and wills.

More often than not, they involve business disputes pitting companies against disgruntled shareholders, or parties to failed mergers and acquisitions against one another.

How does the court of chancery work today?

The seven judges on the Delaware Court of Chancery exercise these powers today, making it a key venue for high-stakes business disputes. Delaware features a well-established and carefully nurtured body of corporate case law dating to 1899 and is the corporate home to more than 1 million business entities, including more than 60 percent of Fortune 500 companies. Many merger agreements, in fact, specify that any disputes will be heard by a Delaware Chancery Court judge.

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“It’s not that they are necessarily more brilliant than judges in other states, they just have a lot of exposure to this stuff and are pretty sophisticated about it,” said Lawrence Hamermesh, executive director of the Institute for Law & Economics at the University of Pennsylvania.

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Has Musk been in this court before?

Musk is no stranger to the Court of Chancery. Earlier this year, he emerged victorious in a shareholder lawsuit accusing him of a conflict of interest in Tesla’s 2016 acquisition of SolarCity, a struggling solar panel company in which Musk was the largest shareholder and also served as board chairman.

Hamermesh, a former professor of corporate and business law at Widener University Delaware Law School, noted that the specific performance sought by Twitter is a “pretty rare” remedy, and that it’s uncertain whether the court will force Musk to consummate the deal.

“There are a lot of instances where a judge could say, ‘Buyer, you’re in breach,’ but the remedy is a termination fee,” he said. “Given what I have seen so far, my gut instinct is that Twitter’s got the upper hand legally. Whether they’ll get the full specific performance or just the breakup fee is a little harder to say.”

How has the court acted in the past?

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If the court does force Musk to close the deal, it would not be without precedent.

In 2001, poultry giant Tyson Foods Inc. was ordered to complete its $3.2 billion (roughly Rs. 26,000) acquisition of meatpacker IBP. when a judge granted IBP’s claim for specific performance.

More recently, a Chancery judge last year ordered private equity firm Kohlberg & Co. to close its $550 million (roughly Rs. 4,500 crore) purchase of DecoPac Holdings. which sells cake decorations and technology to supermarkets for in-store bakeries. Vice Chancellor Kathaleen St. Jude McCormick said Kohlberg had failed to demonstrate that a decline in DecoPac sales amid the coronavirus pandemic constituted a “material adverse effect” allowing the buyers to walk away. McCormick, who was sworn in as Chancellor, or head judge of the court, just one week after her ruling, described it as “a victory for deal certainty.”

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On the flip side, Vice Chancellor J. Travis Laster declared in 2018 that a pharmaceutical company targeted for a merger had experienced such a decline in its financial condition that it amounted to a material adverse effect, allowing the proposed buyer to terminate the deal. The ruling marked the first time the court found the existence of a material adverse effect, or MAE, in a business transaction. It allowed German health care company Fresenius Kabi AG to walk away from its planned $4.3 billion (roughly Rs. 35,000 crore) acquisition of US generic drugmaker Akorn.


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Musk Bid for More Data on Twitter Bot Accounts Denied by Judge

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Elon Musk was denied access to additional documents about Twitter’s internal measure of robot and spam accounts after a judge concluded the company already disclosed enough of the information as part of the billionaire’s legal fight over a scuttled takeover. Twitter has “done enough” in handing over documents about the so-called mDAU — a metric used to survey human users of the social media platform, Delaware Chancery Judge Kathaleen St. J. McCormick ruled Friday. Musk had sought more information to bolster his bid to cancel a $44 billion (roughly Rs. 3.5 lakh crore) buyout of the company.

Musk and his lawyers repeatedly accused Twitter of seeking to hide crucial documents and witnesses as they ramp up for an October 17 trial on whether the world’s richest person can legitimately walk away from the deal.

The billionaire claims the company hadn’t levelled with him about the number of spam and bot accounts among its more than 230 million users. Twitter says Musk has buyer’s remorse and his concerns are a pretext to get out of a deal.

McCormick also denied Musk’s request Twitter officials conduct further searches of the files under the terms “user-active minutes,” (UAM) or “stickiness,” two ways of measuring how long users stay on the platform.

Both sides have issued a fusillade of subpoenas and deposition requests to banks, investors and advisers involved in the teetering transaction. McCormick has been forced to rule on about a half-dozen disputes over document disclosures and other discovery issues.

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Meanwhile, the judge also appointed Chris Sontchi, a retired bankruptcy judge, to serve as a special master to oversee discovery disputes. The Wilmington, Delaware-based Sontchi now works as a mediator and also serves as a judge on the Singapore International Commercial Court.

See also  Government Orders to Block 8 YouTube Channels for Alleged Disinformation

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Ten Things Elon Musk’s Texts Reveal About the Twitter Deal

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A new trove of text messages between Elon Musk and Twitter executives, close friends, potential investors and Silicon Valley bros sheds light on how a $44 billion (nearly Rs. 3,58,100 crore) deal by the world’s richest person to buy the social media company came about — and ended up in court.

The texts show who wanted to be part of the buyout and reveal the inner circle’s musings on who should run the company if Musk did come to own it. They were disclosed as part of Twitter‘s lawsuit to make Musk follow through on his $54.20 (nearly Rs. 4,400)-per-share offer, which is slated to go to trial in Delaware Chancery Court next month.

Among the many texts, Musk discloses that he “has a minor case of COVID” in late March, is usually “up until ~3 am” and no longer has a personal assistant.

Here are 10 glimpses behind the scenes.

1. Jack Dorsey, Twitter’s former Chief Executive Officer, worked to get Musk to join the board shortly after activist investors starting agitating for change at the company in 2020.

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“I tried my hardest to get you on our board, and the board said no,” Dorsey wrote. “That’s about the time I decided I need to work to leave, as hard as it was for me.”

Dorsey is “jack jack” on Elon’s phone.

2. Musk’s relations with Twitter CEO Parag Agrawal went from friendly to frosty within a week. On April 5, Agrawal tweeted that Musk was being appointed to Twitter’s board — and got Musk’s approval for the language of the tweet.

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But by April 9, the tone had shifted dramatically. Agrawal upbraided Musk over his tweets disparaging the company.

“You are free to tweet ‘is Twitter dying’ or anything else about Twitter — but it’s my responsibility to tell you that it’s not helping me make Twitter better in the current context. I’d like to provide your perspective on the level of internal distraction right now and how it [sic] hurting our ability to do work.”

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“What did you get done this week?” Musk snapped back.

“I’m not joining the board. This is a waste of time,” he texted 40 seconds later.

“Will make an offer to take Twitter private,” he texted 15 seconds after that.

3. A few minutes later, Musk texted with Chair Bret Taylor about fixing Twitter. The texts suggest he already knew about Twitter’s bot problem, which he would later cite as a reason to abandon the deal.

“This is hard to do as a public company, as purging fake users will make the numbers look terrible, so restructuring should be done as a private company,” Musk wrote. “This is Jack’s opinion too.”

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4. On April 20, Musk texted Oracle‘s Larry Ellison.

“Any interest in participating in the Twitter deal?” he asked. Ellison said yes. Musk asked how much.

“A billion … or whatever you recommend,” Ellison replied. Musk recommended $2 billion (nearly Rs. 16,300 crore). On April 24, Ellison said, “Since you think I should come in for at least $2 billion. I’m in for $2 billion.”

5. Several of Musk’s friends had ideas on whom Musk should hire. Investor Bill Lee suggested Bill Gurley of Benchmark Capital. Jason Calacanis noted that “Twitter CEO is my dream job.”

See also  Elon Musk, Twitter CEO Parag Agrawal Said to Postpone Depositions Ahead of Upcoming Trial

6. Joe Rogan was a fan of the deal. “I REALLY hope you get Twitter,” the outsize podcaster texted. “If you do, we should throw a hell of a party.”

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7. Steve Jurvetson suggested Musk hire Emil Michael, the former chief business officer of Uber Technologies, and texted Michael’s LinkedIn account over.

“I don’t have a LinkedIn account,” Musk responded.

8. Gayle King of CBS asked Musk in April for an interview, saying buying Twitter was what the kids call a “gangsta move” and suggesting that Oprah Winfrey might want to join the board. King said she’d like a Twitter edit button.

“Twitter edit button is coming,” Musk responded.

9. Musk warned Calacanis against offering investment in the deal to “randos.”

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It “makes it seem like I’m desperate,” he said.

Calacanis said he only wanted to be supportive: “You know I’m ride or die brother.”

10. In March, Sam Bankman-Fried, the crypto billionaire, tried to get in touch with Musk through an associate to discuss joining in a deal for Twitter. Musk appeared uninterested — and unaware of Bankman-Fried’s wealth, asking, “Does he have huge amounts of money?”

Eventually he warmed to the idea, “so long as I don’t have to have a laborious blockchain debate.”

It’s unclear if they met.

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Meta Unveils ‘Make-A-Video’ AI Text-To-Video Generator: All Details

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Meta has unveiled a new artificial intelligence system called ‘Make-A-Video’ that will allow users to generate short video clips by entering a text description of the desired scene. The announcement follows the company’s recent advancements in generative technology research, which seeks to give creators more creative control over artificially intelligent image generation. With the announcement, Meta has taken the technology a step further by including text-to-video generation capabilities apart from text-to-image. However, the company is yet to release access to users for the model.

The prompt-generated videos are five seconds or shorter and would contain no audio. However, Meta claims that a wide range of prompts is supported by the model.

Meta, while making the announcement through a blog post, stated that in a commitment to ‘open science’ it will be sharing details of the research behind the latest artificial intelligence generative technology while also confirming its plans to release a demo experience for users.

Generative AI research is pushing creative expression forward by giving people tools to quickly and easily create new content,” said Meta in a blog post announcing the work. “With just a few words or lines of text, Make-A-Video can bring imagination to life and create one-of-a-kind videos full of vivid colors and landscapes,” added the parent company to Facebook and Instagram.

In the research paper describing the model at work, the company notes that ‘Make-A-Video’ demo model utilises pairs of images, captions, and unlabeled video footage sourced from WebVid-10M and HD-VILA-100M datasets that includes stock video footage created by sites like Shutterstock and scraped from the web that together spans hundreds of thousands of hours of footage.

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Meta CEO Mark Zuckerberg took to Facebook to describe the work as “amazing progress,” while adding that “it’s much harder to generate video than photos, because beyond correctly generating each pixel, the system also has to predict how they’ll change over time.”

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However, there have been concerning issues raised around AI generative media, with some suggesting that it could lead to a rise in misinformation, propaganda, and non-consensual pornography, as seen in the case of AI image generative systems and deepfakes, according to a report by The Washington Post. Meta says it wants to be “thoughtful” about how they build such generative models and hence plans to limit access to them. However, a timeline on the demo experience and clarity on how access would be limited is yet to be known.


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