Twitter is ready for a possible legal battle with Elon Musk

Elon Musk may be gearing up for the next chapter in his Twitter takeover journey: court.

A $44 billion deal was struck between Musk and Twitter in April, and the two sides have been working to close the deal ever since. Mr. Musk requested information on how many Twitter accounts are bots, and Twitter has provided Musk with access to his “firehose,” or stream of tweets. You have continued to share additional information with him.

On Thursday, The Washington Post reported that the deal was in jeopardy and that the Musk team was “expected to take potentially drastic action.” The article’s claims, which could not be confirmed by the DealBook newsletter, took Twitter and its advisers by surprise, because they did not see the deal as in greater jeopardy than at any time in recent months.

Musk did not respond to a request for comment. Twitter reiterated that he intended to “close the transaction and enforce the merger agreement at the agreed price and terms.”

There are plenty of “drastic” actions Musk could take, but when it comes to the deal, there are two clear possibilities: He could send a letter to Twitter saying he’s backing out of the deal, and he could sue Twitter. Those two actions will most likely, but not necessarily, happen simultaneously.

There is no clear reason for Musk to try to break the deal, because Twitter has publicly revealed that roughly 5 percent of its users are bots since it went public. But you can try to claim that this disclosure is intentionally misleading, a very high bar to meet legally.

In that case, Twitter could countersue. Twitter strongly believes that the deal contract is on their side and that it would be an uphill battle for Musk. The deal has a “specific performance clause,” which gives the company the right to sue you and force you to complete the deal as long as the debt financing you’ve cornered remains intact. And even if that 5 percent estimate is wrong, Twitter warns in its regulatory filings that the number is an estimate and “could be higher than we currently estimate.” The bar for using that as a reason to get out of a deal is high.

A case could be seen in Delaware, where Twitter is registered. Twitter would almost certainly seek an expedited case, given the size of the deal. One possible judge is Chancellor Kathaleen St. J. McCormick, who is also overseeing the Orlando Police Pension Fund’s lawsuit over the settlement.

The stakes are high. The most valuable part of Twitter right now is its acquisition deal with Musk. Its shares are down 24 percent since April and are trading well below Musk’s agreed-upon price.

Twitter is experiencing pressure on its advertising business, has frozen hiring and is laying off some staff. Accepting less than the price it originally negotiated with Musk could expose Twitter to shareholder lawsuits. So while litigation can be expensive, losing the deal can be even worse.

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