Elon Musk may be gearing up for the next chapter in his Twitter takeover journey: the courtroom.
A $44 billion deal was struck in April between Mr. Musk and Twitter, and the two sides have been working to complete the deal ever since. Mr. Musk requested information about the number of Twitter accounts that are bots, and Twitter provided Mr. Musk with access to its “firehose,” or tweet stream. He continued to share additional information with him.
On Thursday, the Washington Post reported that the deal was in jeopardy and that Mr Musk’s team needed 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, as they did not consider the deal to be in more jeopardy than at any other time during of the last few months.
Mr. Musk did not respond to a request for comment. Twitter reiterated its intent “to complete the transaction and enforce the merger agreement at the agreed price and terms.”
There are plenty of “drastic” actions that Mr. 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 ending the deal, and he could sue Twitter. Both of these actions would most likely, but not necessarily, occur simultaneously.
There is no clear reason for Mr Musk to try to break the agreement, as Twitter has publicly disclosed that around 5% of its users have been bots since it went public. But he can try to claim that this disclosure is intentionally misleading, a very high bar to meet legally.
In this case, Twitter could counterattack. Twitter strongly believes the contract is on its side and it would be an uphill battle for Mr. Musk. The deal has a “specific performance clause,” which gives the company the right to sue him and force him into the deal as long as the debt financing he secured remains intact. And even if that 5% estimate is wrong, Twitter warns in its regulatory filings that the number is an estimate and “may be higher than what we currently estimate.” The bar for using it as grounds for terminating an agreement is high.
A case could be heard in Delaware, where Twitter is registered. Twitter would almost certainly be looking for an expedited deal, 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 deal.
The stakes are high. The most valuable part of Twitter right now is its acquisition deal with Mr. Musk. Its shares are down around 24% since April and are trading well below the price agreed with Mr Musk. Shares of Twitter fell 4% in premarket trading on Friday.
Twitter is under pressure on its advertising business, has frozen hiring and is laying off some staff. Accepting less than the price originally negotiated with Mr. Musk could expose Twitter to shareholder lawsuits. So while litigation can be costly, losing the case can be even worse.