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Twitter-Elon Musk Legal Battle Begins: Who Is More Likely to Win?


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Twitter officially sued Elon Musk for reversing the process of buying the social network; now, it will start a legal battle in which the tycoon must prove that the company withheld information about the number of bots on the platform.

Musk sent a letter to Twitter on Friday saying he was pulling out of the deal he made in April, which was to buy the platform for $54.20 per share, or a total of $44 billion.

The businessman has said he wanted to acquire Twitter to address the presence of spam and fake accounts on the platform. In a statement announcing the merger, he said he would prioritize “defeating the spam bots and authenticating all humans.”

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However, during the purchase process, the tycoon accused the social network of delivering “false or misleading statements” about the number of fake accounts on its platform and, for that reason, decided to halt the purchase.

Specialists in this type of legal dispute assure that Twitter will not come out unscathed because, during the negotiation process, the company fired employees and stopped hiring, a practice they consider contrary to the company’s obligation to continue operating normally.

However, Musk could face a disadvantage because he will need to prove that the platform concealed data about the fake accounts. He will also need evidence that that particular issue called into question the fundamental basis of the deal.

“Merger agreements like this one are designed to prevent buyers from getting cold feet and deciding they want to walk away,” Ann Lipton, a law professor at Tulane University who specializes in corporate litigation, explained to the BBC.

Lipton explained that Musk’s allegations “may be valid” but that in this case, they “do not merit pulling out of the deal.”

“It’s not enough unless he can show that the representations are not just false, but also that they dramatically call the fundamentals of the deal into question,” she explained. “Both have a lot to lose,” Lipton warned.

The tycoon early on asked for information about bots, but according to the company, bots account for less than 5% of its nearly 230 million total users. But Musk believes they could be as high as 20% of users and had asked for evidence from the company to back up his figures.

If Twitter wins in court, Musk will have to pay at least about $1 billion in damages. In addition, he could be forced to fulfill his commitment and buy Twitter.

The original merger agreement reached by Twitter with Elon Musk, worth US$44 billion, includes a term providing for a US$1 billion penalty should either party decide to back out.

However, the shares have gone from US$54.20 to US$32.64 in a few days. In other words, the company that Musk agreed to buy for US$44 billion is now worth much less, and US$1 billion will not be enough to remedy what has happened.

What does Twitter’s lawsuit say?

“Having mounted a public spectacle to put Twitter in play and having proposed and then signed a seller-friendly merger agreement, Musk believes that he – unlike every other party subject to Delaware contract law – is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” the lawsuit reads.

It accuses the billionaire of criticizing the company, disrupting its operations, wrecking shareholder value, and a long list of contractual breaches that have darkened its business and asks that he be forced to perform as agreed.

Twitter’s lawsuit also says that Musk made his offer without asking for any explanation about his spam or fake accounts estimates.

For his part, Musk has reacted via Twitter with a meme: “They said I couldn’t buy Twitter; Then they wouldn’t disclose bot info; Now they want to force me to buy Twitter in court; Now they have to disclose bot info in court,” he posted.

What do litigation experts say?

“It’ll be a big battle, but I predict it’ll be quietly settled. I think Mr. 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,” said John Coffee, a professor at Columbia Law School.

The court could release Musk from the obligations agreed to in the deal, force him to go ahead with the agreement and pay the agreed US$44 billion, or cause him to pay the US$1 billion penalties for walking away from the deal. The latter option would be a victory for the tycoon and a coup de grace for the company.