Social media network company, Twitter, has hired an elite law firm, Wachtell, Lipton, Rosen & Katz to take a legal action against the world’s richest man, Elon Musk, for backing out of the aborted deal.
Twitter’s preparation to sue Musk was based on his move to terminate his $44 billion acquisition of the social media company.
According to Financial Times, the San Francisco company is preparing to file its lawsuit with the Delaware Court of Chancery against Musk early this week.
Recall that Musk said on Friday that he intended to end his initial deal of buying Twitter, mentioning three breaches of the merger agreement by the social media platform.
In its reaction, Twitter vowed to hold the billionaire to his original deal terms and price of $54.20 per share, in what could develop into a terrible legal fight that would dictate the future of the company.
Wachtell Lipton has 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 Solar City, another piece of his 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 immediately respond to a request for comment.
In a regulatory filing last 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.
Twitter, which denies Musk’s claims, has an incentive to push the deal through or extract a larger break fee from Musk than the $1 billion 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.
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 concerns simply 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.
Meanwhile, shares in Twitter fell Monday after Musk announced he was pulling out of a $44bn (£36bn) deal to buy the social media platform.
Musk backed away after claiming Twitter failed to provide enough information on the number of spam and fake accounts on the site.
Twitter plans to take legal action to make the deal go ahead and has hired a top US law firm.
Musk tweeted saying Twitter would need to “disclose bot info” in court.
The multi-billionaire then tweeted a picture showing American actor and martial artist Chuck Norris at a chessboard, with a follow up post saying “Checkmate”.
Twitter’s share price stood at about $34.40 in early Monday trading – falling further below the $54.20-a-share takeover price agreed by Musk and Twitter’s board in April.
It is the first time investors have been able to react to Musk’s announcement on Friday that he wanted to pull out of the deal.
Musk – who is also the boss of electric car firm Tesla – announced plans to buy Twitter in April, but the deal was put on hold a month later due a row over the number of fake accounts on the platform.
The original merger agreement includes a $1bn (£830m) break-up fee, but instead of pushing for Musk to pay the sum, Twitter wants the businessman to complete the deal.
“The Twitter board is committed to closing the transaction on the price and terms agreed upon with Musk,” its chairman Bret Taylor wrote in a tweet.
Twitter has hired New York’s Wachtell Lipton Rosen & Katz, which is one of the world’s leading corporate law firms.
John Coffee, a Columbia Law School professor and a former adviser to the New York Stock Exchange and Nasdaq, told the BBC that Musk didn’t have a “great legal argument”.
“It’ll be a big battle, but I would predict it’ll be quietly settled,” he said. “I think Musk doesn’t expect to come out with a victory. I expect that he’s hoping that he can knock another 10 or 20 billion off the price he agreed to pay.”