Twitter Is Suing Elon Musk, Court Proceedings Could Begin in October

Elon Musk decided to finally back out of the deal to buy Twitter. Will Twitter sue Musk for breaching the agreement? Here's what we know so far.

Anuradha Garg - Author

Jul. 19 2022, Updated 3:38 p.m. ET

There have been a number of twists and turns in the Elon Musk and Twitter saga. It all started back in April when SEC filings revealed that he became the largest private shareholder in the company. In April, Musk made a formal, unsolicited bid to purchase all outstanding shares in the company.

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After a lot of reluctance, Twitter's board reached a decision about Musk's deal. Then, he put the deal on hold due to concerns about Twitter’s fake and spam accounts. On July 8, after a lot of back and forth, Musk backed out of the $44 billion deal. Is Twitter suing Musk?

A whole lot of shuffling had already started within Twitter. The company has started a hiring freeze and fired two of its top managers.

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Why is Elon Musk backing out of the Twitter deal?

Musk cited three breaches of the merger agreement by Twitter as his reasons for walking away from the deal. The SEC filing on July 8 outlined the rationale for Musk backing out of the deal:

  • Musk's team believes that the number of spam and fake accounts on Twitter is “wildly higher” than 5 percent, while Twitter maintained in its regulatory filings that the number of spam and fake accounts is “fewer than 5 percent.”
twitter deal on hold
Source: Twitter
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  • The letter states that “Twitter’s disclosure that it ceases to count fake or spam users in its mDAU when it determines that those users are fake appears to be false.”
  • The letter also claimed that Twitter’s conduct in firing two key high-ranking employees and laying off a third of its talent acquisition team doesn’t go with conducting its business in the ordinary course and to “preserve substantially intact the material components of its current business organization.”

Musk put the deal on hold in May as his team reviewed the veracity of Twitter’s claims regarding the number of spam and fake accounts.

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The deal has a termination fee.

Musk’s deal with Twitter has a $1 billion termination fee if either side backs out under certain circumstances. Since Musk is claiming a breach of agreement terms by Twitter, he could be trying to get out without paying anything.

However, that could be difficult and he might not even get off by just paying the termination fee. According to a specific provision in the merger agreement, Twitter could force Musk to complete the deal.

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Twitter is taking legal action to force Musk to complete the deal.

On July 9, Twitter’s board chairman Bret Taylor said that Twitter will sue Musk to enforce the deal. In a tweet, Taylor said, “The Twitter Board 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.”

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According to Financial Times, Twitter has hired an elite law firm, Wachtell, Lipton, Rosen & Katz, to prepare it for its legal battle against Musk.

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On Tuesday, July 19, a judge ruled that Twitter's lawsuit against Musk "should go to a five-day trial in October," CNN reported. While Twitter initially tried to expedite the proceedings, hoping to get their day in court by September, it appears October is when the billionaire and social networking platform will face off in court.

Is Elon Musk making an excuse to back out from the deal?

Many experts believe that Musk’s arguments for backing out of the deal are weak since Twitter’s 5 percent figure has been public for a long time. They were already skeptical of Musk's ability to secure the required funding to close the deal and think that he might be using this as an excuse to get out of the deal.

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Musk’s response to Twitter reportedly hiring a lawyer to sue him wasn't entirely unexpected. He tweeted out a meme of him laughing in four different photos!


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