LEGAL ENVIRONMENT OF BUSINESS: MBA 571

POINT PARK UNIVERSITY

201 WOOD STREET
PITTSBURGH, PA, USA 15222

SEPTEMBER 14, 2022

ELON MUSK VS TWITTER LEGAL BATTLE

Prepared by:
Joseph Sunny

Submitted to:
George Bromall

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 Elon Musk VS Twitter Legal Battle

In Apr 2022, the world’s richest man, Elon Musk created a bid to shop for Twitter

offering roughly $44 billion, $54.20 for a share. He vowed to loosen the company’s policing of

content and extirpate pretend accounts. Since then, however, the social media giant and Musk are

bolted into a very legal battle, as Musk claimed that Twitter broke many provisions of the

acquisition and thus, he would need to back out of the deal. Amidst the claims and

counterclaims, Twitter filed its response on a weekday in Delaware Chancery Court, making an

attempt to ridicule the claims created by Elon Musk, explaining that Twitter didn't live up to

acquisition terms. Later on, Elon Musk's legal team joined the battle by claiming that Twitter has

misstated the number of fake and spam bot accounts on its platform, a central charge Musk has

made to justify terminating the acquisition agreement after originally citing a desire to "defeat

the spam bots" as a reason for buying the company. Musk's main claim against Twitter is that the

San Francisco-based company breached their deal because it will not share with him enough

information to back up its claim that spam or fake accounts constitute less than 5% of its active

users. Twitter has stood by this estimate but also said it's possible the number of these accounts

is higher.

In my opinion, Twitter Inc has a strong legal case against Elon Musk for walking away

from the deal, he could have opted for a renegotiation or settlement instead of a court fight.

Musk claims that the company's misrepresentation of the number of spam accounts might be a

"material adverse effect (MAE)" that would allow him to walk away under the terms of the deal

contract. But MAEs are invoked generally when dramatic, unexpected events that cause long-

term harm to a company's performance. The issue of spam and fake accounts are nothing new

and it is common to all social media giants, Twitter still able to produce growth despite the effect

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of spam accounts. Musk also has the burden to prove more likely than not, that the spam account

numbers not only were false, but they were so false that it will have a significant effect on

Twitter's earnings going forward. When looking into the history of such litigations, most of the

time the courts find in favor of the target companies and order acquirers to complete their deals.

A recent development in the case was, Kathaleen McCormick, the judge overseeing the

case, hands Elon Musk a win in Court after ruling that to include whistle-blower accusations

from Peiter Zatko, a former Twitter security chief who claimed that the social network had

misled the public about its security practices. However, she rejected Musk’s request for a delay

of the trial, which will proceed on Oct. 17. Twitter shares surged 4 percent on the news.

Testimony from Twitter’s former security chief to US senators was undoubtedly bruising for the

social media company. But it is unlikely to have a significant impact on Elon Musk’s legal battle

to terminate the deal. All social media portals face privacy and security issues, but for this to

affect the trial, it has to amount to a material adverse effect or fraud, which is a very high

standard. If more egregious violations come out from the whistleblower, it may start to affect the

trial.

The New York Times reported that Musk discussed re-pricing the deal with Bob Steel, a partner

at Perella Weinberg, according to text messages Twitter’s lawyers disclosed. These may point

out to the fact that there is still a window for discussions and if the deal was renegotiated it may

still have a better chance than a bitter court battle.