As Musk Set to Drop Deal, Twitter Faces ‘Worst-Case Scenario’
The team plans to file a lawsuit in the Delaware Court of Chancery, where many corporate battles are ongoing, as early as this week, the person said.
Twitter’s hiring of the top legal team was first reported by Bloomberg.
Weeks after agreeing to buy Twitter in April, Musk appeared to back down on the deal, complaining that the company did not provide adequate details about the number of rogue, fake or spam accounts using the service.
Twitter insists it has fully complied with the agreement’s disclosure requirements, including providing Musk with a “fire hose” of data including millions of tweets sent in real time.
Musk argues in a filing with the Securities and Exchange Commission that the actual size of Twitter’s user base is an important fact about the company, since 90% of its revenue comes from ads. If Twitter wasn’t honest, its legal team believes that gives it a valid reason to back out of a deal it’s contractually obligated to enter into.
Twitter executives believe they have a strong case that Musk violated the terms of the buyout agreement, which he signed in April, agreeing to pay $54.20 for each share in the company. Twitter shares closed Friday below $37.
But at a minimum, the company is likely to face a lengthy legal battle with one of the wealthiest and most mercurial people in the world, which could cripple its ability to launch new initiatives and attract workers.
Twitter chairman Bret Taylor responded to Musk’s decision to walk away from the deal by saying in a tweet that the company is “committed to completing the transaction at the price and terms agreed to with Mr. Musk and plans to take legal action to enforce the merger agreement. We are confident that we will prevail in the Delaware Court of Chancery.”
Elon Musk, the Twitter deal and his quest to save ‘all life on Earth’
Under the terms of the takeover agreement, Musk could be required to pay a $1 billion severance fee.
The fall in Twitter’s share price is part of a broader tech stock slump that has included Tesla, the electric car maker in which Musk is the largest shareholder. Tesla shares have lost about a third of their value since early April.
Twitter’s hiring of Wachtell, Lipton, comes just days after Musk’s lawyers said in a filing with the Securities and Exchange Commission that Twitter had “breached” the terms of the takeover deal for having failed to fully disclose information about its reliance on “fakes and spam”. accounts” in its membership demands.
Musk is represented by Skadden, Arps, Slate, Meagher & Flom LLP.
On Sunday, Twitter declined to comment. Wachtell, Lipton did not respond to emails seeking comment, nor did Musk.