Musk Court Fight: Twitter Has Slight Advantage

With Elon Musk attempting to terminate his $44 billion takeover of Twitter Inc. and the company vowing to force him to follow through, the social-media powerhouse and the world’s richest person appear headed for a messy courtroom battle.

The Wall Street Journal reports the company says it plans legal action and is any day expected to file a lawsuit in the Delaware Court of Chancery, arguing he is required to close the agreed-upon deal.

Corporate law experts say Twitter appears to be on sounder legal footing than Mr. Musk, who accused the company of breaching their contract. The bigger question, they say, is if Twitter succeeds in court, is it really possible to force the eccentric billionaire—known for eschewing norms even when it gets him in legal trouble—to buy a company he doesn’t want to own?

“What are they going to do if there is a judgment and he says, ‘Well, I’m still not going to buy it’?” said Zohar Goshen, professor of transactional law at Columbia Law School. “They don’t really have tools to force him to go through with it. You don’t put people in jail because they don’t buy something.”

There is little precedent to draw on. Though there have been a handful of examples of buyers being forced to follow through with purchases under the “specific-performance” clause that Mr. Musk agreed to, most were small deals. Never has the concept been tested on such a big scale.

Mr. Musk in a Friday filing moved to terminate the deal, with his Skadden, Arps, Slate, Meagher & Flom LLP lawyer Mike Ringler arguing that Twitter breached their contract. Mr. Musk alleged that the company appears to have misrepresented the number of spam accounts on its platform, didn’t provide his team with all the information requested, including data to examine the issue, and fired executives and made other changes to its business without permission.

Mr. Musk’s team says Twitter’s longtime estimate that fewer than 5% of its monetizable daily active users are spam accounts appears inaccurate, and therefore could represent a “material adverse effect.”

Under this concept, a buyer must show that a company’s actual business differs dramatically from what it agreed to buy. It is a high bar that very few buyers who have gotten cold feet have ever successfully invoked.