Twitter has retained a prominent New York law firm as it prepares to fight Elon Musk over his decision to abandon a $44 billion takeover of the social media company.
Twitter executives hired Wachtell, Lipton, Rosen & Katz LLP, which specializes in merger and acquisition law, to handle an anticipated lawsuit against Musk, according to a person familiar with the discussions who was granted anonymity to discuss confidential matters.
The team plans to file suit in Delaware Court of Chancery, where many corporate battles are litigated, as soon as this week, the person said.
Twitter’s hiring of the high-profile legal team was first reported by Bloomberg.
Within weeks of agreeing to buy Twitter in April, Musk appeared to sour on the deal, complaining that the company was failing to provide adequate details of the number of automated, phony or spam accounts using the service.
Twitter insists it has fully complied with the deal’s disclosure requirements, including by providing Musk with a “fire hose” of data comprising millions of tweets sent in real-time.
Musk argues in a filing with the Securities and Exchange Commission that the true size of Twitter’s user base is a material fact about the company, since 90% of its revenue comes from advertisements. If Twitter were not being truthful, his legal team believes it gives him a valid reason to get out of a deal he is contractually obligated to close on.
Twitter executives believe they have a strong case that Musk has violated the terms of the takeover deal, which he signed in April, agreeing to pay $54.20 for each share of the company’s stock. Twitter shares closed Friday below $37.
But at a minimum, the company is likely to face a lengthy courtroom battle with one of the world’s richest and most mercurial individuals, which could paralyze its ability to launch new initiatives and attract workers.
Bret Taylor, the chairman of Twitter’s board, responded to Musk’s decision to quit the deal by saying in a tweet that the company 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. We are confident we will prevail in the Delaware Court of Chancery.”
Under the terms of the takeover deal, Musk could be required to pay a breakup fee of $1 billion.
Twitter’s share-price slide is part of a broader technology stock slump that has included Tesla, the electric carmaker that boasts Musk as its largest shareholder. Tesla shares have lost roughly one-third of their value since early April.
Twitter’s hiring of Wachtell, Lipton comes just days after Musk’s attorneys said in a filing with the Securities and Exchange Commission that Twitter was “in breach” of the terms of the takeover deal for failing to fully disclose information on its reliance upon “false and spam accounts” in its membership claims.
Musk is represented by the firm of Skadden, Arps, Slate, Meagher & Flom LLP.
On Sunday, Twitter declined to comment. Wachtell, Lipton did not respond to emails requesting comment, nor did Musk.