Elon Musk has sued the law firm Wachtell, Lipton, Rosen & Katz to recover a portion of the $90mn fee paid by Twitter, the bulk of which was wired in the hours before the billionaire took over the social media company.
Wachtell Lipton, an elite Wall Street firm, had helped Twitter’s then-board to close the $44bn deal after Musk had attempted to walk away last year.
X Corp, the Musk entity that now owns Twitter, said in a complaint filed in a California state court earlier this week that Wachtell Lipton had attempted to “fundamentally alter its fee arrangement as litigation counsel” in order to obtain “an improper bonus payment in violation of its fiduciary and ethical obligations to its client”.
The $90mn figure was agreed upon and most of it wired to Wachtell Lipton hours before Musk’s deal to buy Twitter at $54.20 a share closed on October 27, the complaint said, and included what Musk’s filing said was “an enormous but unspecified success fee”. The sum of $90mn accounted for 10 per cent of Wachtell Lipton’s gross revenue in 2022, the complaint said.
Wachtell Lipton “exploited a corporate client left unprotected by lame duck fiduciaries who had lost their motivation to act in Twitter’s best interest”, the complaint alleged.
Twitter declined to comment on the lawsuit. Wachtell Lipton did not respond to a request for comment.
Musk agreed to buy Twitter in April 2022 then later tried to abandon the deal as tech stocks cooled, alleging last July that the platform had misled investors and regulators over fake accounts and cyber security. Hiring Wachtell Lipton’s prominent litigation department, Twitter sued to force Musk to close the deal, sparking a legal battle and discovery process.
Wachtell Lipton had pitched its Delaware corporate law practice to the Twitter board in June 2022 just as Musk publicly started to show discomfort over the deal, according to the legal filing. Among the law firm’s selling points was its association with Leo Strine, the former chief justice of the Delaware Supreme Court who had joined Wachtell Lipton upon his 2020 retirement, according to in an email to the company noted in the complaint.
Just weeks before the two sides were due to face each other in a Delaware court, Musk announced that he would complete the Twitter buyout at the agreed price if it dropped its legal action.
In its complaint, lawyers for X Corp said that during the first few months of Wachtell Lipton’s engagement, it had submitted invoices to Twitter that included “millions of dollars in hourly billings by Wachtell partners with completely blank time entry descriptions”.
The $90mn total came as a shock to Twitter board member Martha Lane Fox, who the filing said had messaged the company’s general counsel: “O My Freaking God”.
All of Twitter’s board members approved the fee, however. The decision came despite Musk earlier that day demanding Twitter “suspend all outbound payments to third parties in anticipation of the imminent merger”, according to the complaint.
In typical M&A deals, buyers assume the professional fees associated with a transaction. In addition to asking for restitution, Musk accused Wachtell Lipton of breaching its fiduciary duty to the Twitter board and aiding a breach of fiduciary duty by the social media group’s outgoing directors in approving the law firm’s fee.