Twitter has hired elite law firm Wachtell, Lipton, Rosen & Katz to prepare for a legal battle against Elon Musk, which ended its $44 billion takeover of the social media company, according to two people familiar with the situation .
The San Francisco-based company is preparing to file its lawsuit against Musk in the Delaware Court of Chancery earlier this week, one of the people said.
Musk said Friday that he plans to back out of his deal to buy Twitter, citing three violations of the merger agreement by the social media platform.
In response, Twitter vowed to keep the moody billionaire on his original terms and price of $54.20 per share, which could escalate into a chaotic legal battle that would determine the company’s future.*
Wachtell Lipton may have the premier litigation practice in Delaware, where the majority of US corporations are incorporated. She defends companies in lawsuits alleging breach of fiduciary duty and breach of merger treaties in the state.
The company initially defended Musk in a shareholder lawsuit brought by Tesla shareholders in Delaware, who allege Musk improperly bailed out SolarCity, another piece of the Musk empire, when Tesla acquired the clean energy company in 2017.
Earlier this year, Musk was acquitted of any wrongdoing in the case by a Delaware judge. He was represented by the law firm of Cravath, Swaine & Moore in the 2021 trial.
Twitter declined to comment on Wachtell’s appointment, which was first reported by Bloomberg. Wachtell did not immediately respond to a request for comment.
In a regulatory filing filed on Friday, Musk’s team argued that Twitter had not provided enough information to prove that the number of fake and spam accounts on its platform is less than 5 percent, as has long been estimated.
The filing claimed that the true number could actually be “much higher,” suggesting the company made misrepresentations in its regulatory filings. It also accused Twitter of failing to meet its obligation to “conduct its business as normal” by firing several senior executives after the deal was struck.
Twitter, which disputes Musk’s claims, has an incentive to go through with the deal or demand a larger breakfee from Musk than the $1 billion already agreed. The stock price has fallen more than 30 percent since the Tesla boss made his offer, and no other buyers have emerged.
It comes as the company has plunged into crisis, announcing mass layoffs and cost-cutting measures in recent weeks. Morale is low among the remaining employees due to job insecurity and disagreements over whether Musk, who has promised to bring a “free speech” ethos to the platform, should lead it.
Twitter is likely to argue that Musk’s concerns simply mask buyers’ remorse over an expensive and heavily leveraged deal amid a broader tech stock defeat.
It’s an interpretation shared by many analysts and legal experts.
“We see the baseless claims made by Elon Musk [Twitter] is misleading investors about the [percentage] fake accounts as an excuse to get out of business,” Brent Thill, an equity analyst at Jefferies, wrote in a research note on Sunday.
Twitter has long made its 5 percent figure public, “causing us to question the validity of Musk’s concerns,” he added.
Eric Talley, a Columbia law professor, said Musk’s arguments are “remarkably thin” as Twitter’s disclosures about fake accounts indicate they are estimates.
He added that although a stipulation in the merger agreement states that Twitter should honor requests for information within reasonable limits, the company can argue that sharing large amounts of private user data is out of the question.
“[The requests] just won’t pass the muster,” he said.
“This could be, in part, a negotiation strategy to try to . . . that this is going to be such an agonizing process in a lawsuit that they might as well accept either a settlement or a reduced price to move on.”
Additional reporting by Alexandra Scaggs in New York
*This story has been modified to correct the agreed sale price