Twitter: Musk pulls out, Twitter to sue

The acquisition agreement is legally binding, but Musk wants to back out.

Twitter has hired US law firm Wachtell, Lipton, Rosen & Katz LLP in preparation for filing a lawsuit against Elon Musk in an effort to compel him to finalise his $44 billion purchase of the social media business.

Bloomberg sources said Twitter intends to initiate legal proceedings in the state of Delaware early this week.

On Friday Twitter chairperson, Bret Taylor - also CEO of Salesforce - said the firm was still committed to concluding the purchase at the agreed-upon price, and that it planned to take legal action to enforce the agreement.

"The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement," Taylor said in a tweet.

"We are confident we will prevail in the Delaware Court of Chancery."

The announcement followed Musk, on Friday, publicly stating that he would back out of his plan to purchase Twitter. He cited the company's failure to share information on fake accounts on the platform as the reason for his decision.

Musk's lawyers informed the US Securities and Exchange Commission (SEC) that their client was pulling out of the merger agreement because the firm was 'in material breach of multiple provisions' of the agreement.

Attorney Mike Ringler from Skadden Arps said Twitter did not give Musk 'necessary business information' he sought.

Musk said in May that he wanted to investigate Twitter's assertions that about 5% of the platform's monetisable daily active users (mDAUs) are spam accounts (even then, people saw it as a way Musk might use to escape the deal - Ed.).

"Twitter has failed or refused to provide this information," Ringler claimed.

"Sometimes Twitter has ignored Mr. Musk's requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information."

Ringler also claimed that Twitter violated the merger agreement by allegedly including "materially inaccurate representations."

This allegation is based on Musk's early investigation of spam Twitter accounts. He has claimed several times that the real figure was greater than the 5% Twitter told him, although hasn't provided any evidence backing that up. For its part, Twitter has said it isn't feasible to determine the number of spam accounts using just information that is publicly available. It arrived at the 5% figure after a professional review.

When Musk and Twitter initially signed their agreement, both parties agreed to be liable for a termination fee of $1 billion in the event that one of them pulled out of the transaction for specific reasons.

Musk has agreed to pay the price in the event that he is unable to get the necessary cash to successfully complete the takeover. And Twitter committed to pay the fee if it found another bidder or if its board recommended that investors vote against Musk's offer.

Following Musk's announcement, Twitter issued a directive to its staff telling them to keep quiet about the matter while the company takes legal action against the billionaire.

Twitter general counsel Sean Edgett issued the instruction in an internal memo.

"Given that this is an ongoing legal matter, you should refrain from Tweeting, Slacking, or sharing any commentary about the merger agreement," he wrote in the memo.

"I know this is an uncertain time, and we appreciate your patience and ongoing commitment to the important work we have underway."

Legal experts believe that Musk's arguments will fail in court.

"Musk is on very weak legal grounds," said John Coffee, a professor of law at Columbia University.

"Twitter appears to have given him access to just about everything to satisfy his desire to know the percentage of bots among its users."

Carl Tobias, Williams chair in law at the University of Richmond, said: "Musk's filing does not appear to give him strong legal grounds to walk away from the deal. His counsel has only made allegations and arguments for Musk's position and judges would have to decide whether the evidence that Musk would present is persuasive enough to support ending the deal."

Tobias suggested that a compromise may be reached between to avoid a scenario in which Musk would be forced to purchase a firm that he is no longer interested in.