Elon Musk and Twitter Inc were sued on Friday by a Florida pension fund seeking to stop Musk from completing his $44 billion takeover of the social media company before 2025.
In a proposed class action filed in Delaware Chancery Court, the Orlando Police Pension Fund said Delaware law forbade a quick merger because Musk had agreements with other big Twitter shareholders, including his financial adviser Morgan Stanley and Twitter founder Jack Dorsey, to support the buyout.
The fund said those agreements made Musk, who owns 9.6 per cent of Twitter, the effective "owner" of more than 15pc of the company's shares. It said that required delaying the merger by three years unless two-thirds of shares not "owned" by him granted approval.
Morgan Stanley owns about 8.8pc of Twitter shares and Dorsey owns 2.4pc.
Musk hopes to complete his $54.20 per share Twitter takeover this year, in one of the world's largest leveraged buyouts.
He also runs electric car company Tesla Inc, leads The Boring Co and SpaceX, and is the world's richest person according to Forbes magazine.
Twitter and its board, including Dorsey and Chief Executive Parag Agrawal, were also named as defendants.
Twitter declined to comment. Lawyers for Musk and the Florida fund did not immediately respond to requests for comment.
The lawsuit also seeks to declare that Twitter directors breached their fiduciary duties, and recoup legal fees and costs. It did not make clear how shareholders believed they might be harmed if the merger closed on schedule.
On Thursday, Musk said he had raised around $7bn, including from sovereign wealth funds and friends in Silicon Valley, to help fund a takeover.
Musk had no financing lined up when he announced plans to buy Twitter last month.
Some of the new investors appear to share interests with Musk, a self-described free speech absolutist who could change how the San Francisco-based company moderates content.
Florida's state pension fund also invests in Twitter, and Governor Ron DeSantis said this week it could make a $15 million to $20m profit if Musk completed his buyout.
In afternoon trading, Twitter shares were down 60 cents at $49.76.
The case is Orlando Police Pension Fund v Twitter Inc et al, Delaware Chancery Court, No. 2022-0396.