ORLANDO, FL – According to reports, the Orlando Police Pension Fund (OPPF) has filed a lawsuit in a Delaware court- due to the OPPF attempting to use Delaware corporate law- to stop Elon Musk from purchasing Twitter for the next three years.
While the filed suit is peculiar in and of itself, there seems to be some serious caveats with how the police pension fund is pursuing this lawsuit under obscure Delaware law regarding shareholder interests.
The OPPF filed the lawsuit on May 7th in Delaware Chancery Court. According to news outlet Pensions & Investments, the $734 million pension fund – who is the solitary plaintiff in the matter – is citing Section 203 of Delaware corporate law to stop Musk from completing the purchase for at least another three years.
As legal services outfit UpCounsel describes Section 203 of Delaware corporate law, it is “a Delaware statute that prevents shareholders (along with their affiliates and associates) from engaging in a tender or exchange offer for a period of three years after buying more than 15 percent of the company’s stock unless certain criteria are met.”
Per the complaint filed in Delaware Chancery Court by the OPPF, they allege that with Musk holding 9.6% of Twitter’s stock as of April 25th and his purported associates like Morgan Stanley who owns 8.8% and Twitter co-founder and former CEO Jack Dorsey’s ownership of 2.4% of Twitter stock, Musk is essentially an interested party toting over 15% of the company stock.
Thus, per the complaint filed by the OPPF, they’re claiming that Musk cannot carry on with the purchase of Twitter lest 66.67% of Twitter’s voting stock not owned by Musk (and his alleged associates) vote to approve the purchase.
However, there seems to be a lot of gaps present in the legal filing brought by the OPPF that makes the lawsuit seem frankly frivolous, and ill-informed.
The first and most obvious aspect in the matter is that Section 203 of Delaware corporate law applies to Delaware-based corporations. Not a single defendant or the respective businesses associated with the lawsuit (as in Musk, Dorsey, Morgan Stanley, Twitter) are based in Delaware. The statute appears to fall only under Delaware General Corporation Law.
Even completely disregarding that aspect, this Delaware law has a few proverbial asterisks that remove it from the equation. One of those being the 15% stock ownership aspect – Musk only holds 9.6% of Twitter’s stock and there is no indication that Dorsey or Morgan Stanley is in any way “affiliates” or “associates” of Musk in this respective endeavor.
As if that weren’t enough nails in the proverbial coffin of this lawsuit, there’s also the fact that Section 203 of Delaware corporate law bears a stock transfer rule that if the company’s board of directors approves the purchase launched by a legitimate “interested stockholder,” then the statute would not apply. For the sake of context, Twitter’s board of directors approved the acquisition on April 25th.
Red Voice Media reached out to the OPPF’s board regarding this lawsuit while also raising questions about the aforementioned caveats in order to gain an understanding of if their legal team has already considered these issues. However, the OPPF did not respond to inquiries about the abovementioned.