Elon Musk, Twitter and a possible lawsuit

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Elon Musk may be preparing for the next chapter in his Twitter takeover journey: court.

He and Twitter struck a $44 billion deal in April, and both sides have been working to finalize it ever since. Mr. Musk asked for information on how many Twitter accounts are bots, and Twitter has granted him access to his “firehose,” or stream of tweets. It has continued to share additional information with him.

On Thursday, the Washington Post reported that the deal was in jeopardy and that Mr Musk’s team “are expected to take potentially drastic action.” The article’s claims, which the DealBook newsletter could not confirm, surprised Twitter and its advisors, who did not see the deal in more jeopardy than at any point in recent months.

Mr Musk did not respond to a request for comment. Twitter reiterated its intention to “complete the transaction and enforce the merger agreement at the agreed price and terms.”

There are many “drastic” actions Mr. Musk could take, but as far as the deal goes, there are two clear options: He could send a letter to Twitter saying he’s ending the deal, and he could Twitter Sue. These two actions would most likely, but not necessarily, occur simultaneously.

There is no clear reason for Mr. Musk to try to break the deal as Twitter has publicly stated that about 5 percent of its users are bots since it went public. But he might try to claim that this disclosure is intentionally misleading, a very high bar that must be legally met.

In that case, Twitter might counter. Twitter firmly believes the deal contract is on its side and that it would be an uphill battle for Mr. Musk. The deal has a “specific performance clause” that gives the company the right to sue him and force him to complete the deal as long as the debt financing he’s cooped up remains intact. And even if that 5 percent estimate is off, Twitter warns in its regulatory filings that the figure is an estimate and that it “could be higher than what we currently estimate.” The bar for using this as a reason for exiting a deal is high.

A case could be tried in Delaware, where Twitter is registered. Given the size of the deal, Twitter would almost certainly aim for an accelerated fall. One possible judge is Chancellor Kathaleen St. J. McCormick, who is also overseeing the Orlando Police Pension Fund’s lawsuit over the deal.

It’s about a lot. The most valuable part of Twitter right now is the acquisition agreement with Mr. Musk. Shares are down about 24 percent since April and are trading well below the price agreed with Mr. Musk. Twitter shares fell 4 percent in premarket trading on Friday.

Twitter sees pressure on its advertising business, has frozen hiring and laid off some employees. Accepting less than the price originally negotiated with Mr. Musk could put Twitter out of shareholder lawsuits. So while litigation can be costly, losing the deal can be even worse.

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