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Twitter has vowed to sue Elon Musk. Here's what could happen in court

Elon Musk and Twitter are accusing each other of breaking their legal agreement in the $44 billion sale of the social network to the billionaire.
Patrick Pleul
Elon Musk and Twitter are accusing each other of breaking their legal agreement in the $44 billion sale of the social network to the billionaire.

Twitter says its $44 billion sale to Elon Musk is still on and it will go to court to make it happen, despite the mercurial billionaire's declaration he is breaking it off.

"The Agreement is not terminated," Twitter's lawyers wrote in aletter to the Tesla and SpaceX CEO on Sunday disclosed in a filing on Monday. Musk "knowingly, intentionally, willfully, and materially breached" his agreement to buy the company, they alleged.

"Twitter reserves all contractual, legal, and other rights, including its right to specifically enforce the Musk Parties' obligations under the Agreement," they wrote.

Back in April, Musk launched a surprise bid tobuy Twitter for $54.20 a share, which the social media company initially resisted beforeaccepting.

Musk has accused Twitter of violating the sale agreement, which he argued gives him grounds to walk away without paying a $1 billion penalty.

It all sets Twitter and Musk up for a lengthy and expensive legal battle in the Delaware Court of Chancery, which deals with corporate disputes.

"The only sure winners in this situation are the lawyers," said Joseph Grundfest, a law professor at Stanford and former commissioner at the Securities and Exchange Commission. "Because a lot of money is going to be spent litigating this question."

Twitter will seek to force Musk to go through with the deal

Legal experts say Twitter has a strong case. The agreement they signed includes a clause that allows Twitter to sue to force Musk to buy the company.

"That means, he promised to buy the company for a price — well, he'd better show up and buy the company for that price," Grundfest said.

Courts have forced buyers to complete deals even after they've gotten cold feet. In 2001, Tyson Foods tried to back out of an agreement to buy a meat processor after raising questions about its business, but the Delaware court ordered it to go through with the purchase.

Forcing Musk to buy Twitter hinges on his financing for the deal remaining in place. Musk is on the hook to pay $33.5 billion himself, and has lined up $13 billion in loans from banks. One key question is, will Musk's declaration that he wants out of the deal cause the banks to change their minds?

The court could order Musk to pay damages instead

Even though there is precedent to force a buyer to complete a deal, Donna Hitscherich, a professor at Columbia Business School, said the court may be reluctant to do so.

"Typically, the court is going to put the parties in the position they were in before the unhappy events occurred," she said.

In that case, the court might not order Musk to buy Twitter – but could stick him with billions of dollars in damages.

While that would likely amount to less than the $44 billion Musk agreed to pay, it would avoid the awkward situation of forcing Musk to buy a company he says he no longer wants to own.

Musk has shown little interest in following legal orders. After the SEC fined him and Tesla $40 million in 2018 over his claims he had "funding secured" to take the electric carmaker private, the regulator said a lawyer needed to vet his tweets. Musk has been accused of violating that order, and he's now trying to get his 2018 settlement with the SEC thrown out.

Musk will argue that Twitter broke their agreement

In his letter Friday to Twitter saying he was terminating the purchase, Musk accused the company of making "false and misleading representations" about its estimates of how many accounts on the platform are fake or spam.

He also accused Twitter of refusing to share information that would help him verify its estimates, and of violating other parts of the legal agreement.

While Musk initially cited cleaning up Twitter's longstanding problem of spam accounts and automated bots as a reason he wanted to buy the company, in recent weeks he's flipped. He now cites the issue as his rationale for backing out of the deal.

Musk says he thinks the prevalence of fake and spam accounts on the platform is far higher than the 5% Twitter estimates. Twitter has said it uses private data to make those estimates, so they can't be easily replicated by outsiders.

Legal experts say even if Twitter's figures were incorrect, that would probably not be a big enough problem to get Musk out of his agreement to buy the company.

"That's a pretty heavy lift," said Hitscherich. "There has to be something very, very significant in the business for the courts to say, 'You know what, you're right, the very nature of this contract has changed so substantially that you don't have to go through with it.'"

Pressure could mount for a settlement

Many deal disputes end with a settlement involving a price cut. That's what happened in 2020 when the luxury conglomerate LVMH Moët Hennessy Louis Vuitton tried to scupper an agreement to buy jewelry icon Tiffany & Company, but ultimately went through with the purchase at a $425 million discount.

Accepting less than $54.20 a share from Musk could open Twitter up to lawsuits from unhappy shareholders. Still, a settlement could spare both sides from further headaches and reputational damage.

Some have speculated that Musk has wanted to buy Twitter for a lower price all along. Since he agreed to the deal, global markets have fallen, with tech stocks hit especially hard. That's made a $44 billion price tag for Twitter look more expensive, even as the value of Tesla shares – Musk's main source of wealth – have plummeted.

It's hard to see Twitter emerging from the legal battle as a winner, even if it's a victor in court. A protracted legal battle would weigh on the company. Morale has already taken a hit since the deal was announced. Some employees are wary of Musk's potential ownership and the changes he's floated to protect his vision of free speech.

Meanwhile, Twitter has been cutting costs, including implementing a hiring freeze and even laying off some employees, as it seeks to strengthen its business, amid a weakening online advertising market, no matter who ends up owning it. A courtroom drama would cast a further cloud of uncertainty over the company.

"How long do you want to go through with this?" Hitscherich said. "You're taking your eye off the business. Everything that takes your eye off the business is an issue."

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Shannon Bond is a business correspondent at NPR, covering technology and how Silicon Valley's biggest companies are transforming how we live, work and communicate.