Twitter has hired elite law firm Wachtell, Lipton, Rosen & Katz as it readies for a legal battle against Elon Musk, who has moved to terminate his $44bn acquisition of the social media company, according to two people familiar with the situation.
The San Francisco-based company is getting ready to sue the Delaware Court of Chancery. MuskOne of the people spoke out in the early hours of this week.
Musk announced Friday that he was going to end his deal to acquire Twitter. The reason? Three breaches of the merger agreement made by the social media platform.
As a response, TwitterIn what could become a complicated legal battle that could determine the future of the company, he vowed to keep the mercurial billionaire to the original terms of his deal and the price of $54.20 per shares.*
Wachtell Lipton is perhaps the most prominent Delaware litigation practice, as Delaware is where most US public companies are incorporated. It defends companies against lawsuits arising out of breach of fiduciary duties and breaches to state merger agreements.
In a shareholder lawsuit filed in Delaware by Tesla shareholders, the firm initially supported Musk. They alleged that Musk improperly bailed SolarCity out of bankruptcy, another part of the Musk empire, after Tesla bought the clean energy company in 2017.
Musk was cleared of any wrongdoing earlier in the year by a Delaware court judge. He was represented by the law firm 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 reply to a request for comment.
In a regulatory filing on Friday, Musk’s team argued that Twitter had failed to provide enough information to prove that the number of fake and spam accounts on its platform stands at less than 5 per cent, as it has long estimated.
The filing alleged that the true number may in fact be “wildly higher”, suggesting the company had made false statements in its regulatory filings. It also accused Twitter of failing to comply with its obligation to “conduct its business in the ordinary course”, by firing several senior employees after the agreement had been made.
Twitter, which denies Musk’s claims, has an incentive to push the deal through or extract a larger break-fee from Musk than the $1bn already agreed. Its share price has dropped by over 30% since Tesla’s chief made his offer, and no other buyers have come forward.
This comes after the company was in crisis and announced mass lay-offs, cost-cutting measures, and other drastic measures. Among remaining employees, morale is low because of job uncertainty and division over whether Musk, who promised to bring a “free speech” ethos to the platform, should run it.
Twitter is likely to argue that Musk’s concerns simply mask buyer’s remorse over a pricey and highly leveraged deal, amid a broader rout in tech stocks.
Many legal experts and analysts agree on this interpretation.
“We see Elon Musk’s unsubstantiated claims that [Twitter]Investors are being misled about the [percentage] of fake accounts as an excuse to back out of the deal,” Brent Thill, equity analyst at Jefferies, wrote on Sunday in a research note.
Twitter has long made its 5 per cent figure public, “making us question the validity of Musk’s concerns”, he added.
Eric Talley, a Columbia law professor, said Musk’s arguments were “notably thin”, given that Twitter’s disclosures on fake accounts note that they are estimates.
He stated that although the merger agreement contains a clause that Twitter must respond to information requests within reasonable time limits, Twitter can argue that it is not appropriate for the company to share large amounts of user data.
“[The requests] are just not going to pass muster,” he said.
“This may well be in some part a bargaining strategy to try to threaten . . . that this is going to be such a torturous process in litigation that they might as well just accept either a settlement or a reduced price to go forward.”
Alexandra Scaggs reports in New York.
*This story has been amended to correct the agreed sale price