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 company is preparing to file its lawsuit with the Delaware Court of Chancery against Musk early this week, one of the people said.
Musk said on Friday that he planned to walk away from his deal to buy Twitter, citing three breaches of the merger agreement by the social media platform.
In response, Twitter vowed to hold the mercurial billionaire to his original deal terms and price of $54.20 per share, in what could develop into a messy legal fight that would dictate the future of the company.*
Wachtell Lipton has perhaps the leading litigation practice in Delaware, where the majority of US public companies are incorporated. It defends companies in lawsuits over breach of fiduciary duty and broken merger agreements in the state.
The firm had initially defended Musk in a shareholder lawsuit brought in Delaware by Tesla shareholders who alleged that Musk had improperly bailed out SolarCity, another piece of the Musk empire, when Tesla acquired the clean energy company in 2017.
Earlier this year, Musk was cleared by a Delaware judge of any wrongdoing in that case. 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 respond to a request for comment immediately.
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 a 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 obligations 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 declined by more than 30 per cent since the Tesla chief made his offer and no other buyers have emerged.
It comes as the company has been plunged into crisis, announcing mass lay-offs and cost-cutting measures in recent weeks. 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 simply concerns mask buyer’s remorse over a pricey and highly leveraged deal, amid a broader rout in tech stocks.
It is an interpretation shared by many analysts and legal experts.
“We see Elon Musk’s unsubstantiated claims that [Twitter] is misleading investors 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 added that, while a covenant in the merger agreement states that Twitter should comply with information requests within reasonable bounds, the company will be able to argue that sharing vast troves of private user data does not qualify.
“[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.”
Additional reporting by Alexandra Scaggs in New York
*This story has been amended to correct the agreed sale price