The Orlando Police Pension Fund claimed in a proposed class action filed in Delaware Chancery Court that Delaware law prohibited a quick merger because Musk had agreements with other major Twitter shareholders, including his financial adviser Morgan Stanley (MS.N) and Twitter founder Jack Dorsey, to support the buyout.
According to the fund, the agreements made Musk, who owns 9.6 percent of Twitter, the effective “owner” of more than 15% of the company’s shares. It stated that unless two-thirds of the shares not “owned” by him granted approval, the merger would be delayed for three years.
Morgan Stanley owns approximately 8.8 percent of Twitter stock, while Dorsey owns 2.4 percent.
Musk hopes to complete his $54.20 per share takeover of Twitter this year, making it one of the world’s largest leveraged buyouts.
Twitter and its board of directors, including Dorsey and CEO Parag Agrawal, were also named as defendants.
Twitter did not respond. Musk’s and the Florida fund’s lawyers did not immediately respond to requests for comment.
The lawsuit also seeks a declaration that Twitter directors breached their fiduciary duties, as well as reimbursement for legal fees and costs. It did not specify how shareholders believed they would be harmed if the merger went ahead as planned.
Musk announced on Thursday that he had raised approximately $7 billion in funding for a takeover, including from sovereign wealth funds and Silicon Valley friends.
Musk announced his plans to buy Twitter last month with no financing in place.
Some of the new investors appear to have similar interests to Musk, a self-described free speech absolutist who has the potential to 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 that if Musk completes his buyout, it could profit $15 million to $20 million.
Twitter shares were down 60 cents to $49.76 in afternoon trading.