(CN) - A Cayman Islands-based private equity firm says Twitter backed out of a deal to sell it $100 million in pre-IPO shares in order to sign a similar deal with BlackRock, an investor the equity firm originally recruited.
1 Oak Private Equity Venture Capital, serving as manager for Bluebird Access 1 LP, sued Twitter, Inc. in New Castle County, Delaware on October 22.
1Oak manages money for high-net worth individuals and institutional investors. Its New Digital Age Fund invests in late stage, pre-IPO internet and mobile investments.
"In around early 2012, 1OAK began discussions with Twitter about an arrangement under which 1OAK would assemble and vet a group of sophisticated investors who would invest a minimum of $100 million to purchase pre-IPO Twitter shares from Twitter employees or Series A and/or B early stage investors," the firm says.
This deal would allow Twitter employees to immediately profit on their shares, avoiding post-IPO restrictions, and give Twitter a new set of shareholders with whom it had already negotiated share restrictions, such as proxy voting rights, according to the complaint.
Twitter drafted an Approved Buyer Agreement in April 2012, after vetting 1Oak's qualifications as an eligible purchaser. It allegedly encouraged 1Oak to raise the $100 million as quickly as possible.
"1OAK proceeded to spend substantial time, effort, money and reputation assembling an investor pool to acquire Twitter pre-IPO employee shares - a pool which ultimately far exceeded the minimum $100 million that Twitter said would be required. In September/October 2012, 1OAK provided Twitter with documents reflecting that 1OAK had obtained investor commitments for $500 million," 1Oak claims.
1Oak returned the Approved Buyer Agreement to Twitter on April 8, 2012, but Twitter never signed it. However, the social media website continued to assure 1Oak that it was committed to the deal for the next six months.
In October, 1Oak recruited BlackRock, the largest asset manager in the world, to invest in Twitter through 1Oak's Fund. BlackRock entered into a non-disclosure agreement with 1Oak on October 17, 2012.
Five days later, "Twitter abruptly informed BlackRock that Twitter would terminate 1OAK's status as an 'approved buyer,' which predictably caused BlackRock to cease working with 1OAK. Twitter began to work with BlackRock directly.
"In January 2013, Twitter and BlackRock announced an $80 million pre-IPO share purchase transaction with Twitter employees, which was the type of investment that Twitter agreed that 1OAK would develop and for which: (1) 1OAK had been designated the approved buyer by Twitter; (2) 1OAK developed and procured BlackRock's interest in an investment to be made through 1OAK; and (3) 1OAK disclosed BlackRock's interest to Twitter under a non-disclosure agreement that precluded Twitter from using confidential customer information except for a potential business transaction involving 1OAK," the firm says.
Twitter denied 1Oak's demand that it be permitted to participate in its deal with BlackRock, 1Oak claims.
The social media site set its IPO price at $26 a share. It now trades at $50 a share.
1Oak seeks punitive damages for breach of contract, breach of implied covenant of good faith, promissory estoppel, and interference with prospective business advantage.
It is represented by Theodore Kittila with Greenhill Law Group in Wilmington, Delaware, and Jeffrey Makoff with Valle Makoff in San Francisco.
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