What happened?
On 12 July 2022, Twitter Inc announced the initiation of a legal battle with Elon Musk, the richest person in the world, after he announced on 8 July, his intention to backtrack on the deal to buy twitter at $44 billion. Musk claims that the company violated the agreement by not responding to requests for information on the spam/fake accounts, citing it as a material breach. In their lawsuit, Twitter declares that Musk broke the terms of the deal, and was really backing out due to financial reasons. They also claim that he broke the US Securities rules when he failed to disclose his nine per cent holding in Twitter. In April 2022, Musk announced his interest in buying Twitter at a share price of $54, by 25 April, the value remained at $52. However, on 13 July, following the lawsuit news, the value stands at $37.

What is the background?
First, the relevance and interest towards Twitter. Twitter was hatched in 2006 and grew beyond the purpose it was envisioned. It has a base of 217 million daily active users and is popular for its posts with shorter word limit and interactions made by prominent figures. Twitter evolved into a tool for politicization and through the years struggled to remain neutral and strike a balance in the waves of misinformation, cancel culture, and upholding free speech. Twitter has revealed over time that five per cent of its users are fake accounts. When Twitter began to ban individuals, in the case of Trump, Elon Musk was critical of the same. Elon over the years amassed a 9.1 per cent share in the company as the highest shareholder, and he also has a follower base of 81.8 million followers on Twitter. Twitter in recent years has become a platform that promotes ‘free-speech,’ which also was the focus of Musk’s push to buy the company.

Second, the deal, and what went wrong. In March Elon tweeted, “Given that Twitter serves as the de facto public town square to adhere to free speech principles fundamentally undermines democracy. What should be done?” Musk has been an ardent user of his twitter platform to create a popular image of himself. “Twitter has extraordinary potential,” Musk said in a letter to Twitter’s board chairman, “I will unlock it,” he had said. In response to his bid in April, Twitter tried using the ‘poison pill’ strategy initially, but gave-in to the deal for $44 billion. With his claims in May, Musk set the public grounds for calling it off. However, Twitter alleges, that in the 13 May tweet, Musk misrepresented Twitter's sample size for estimating spam accounts as just 100, even though earlier that day Twitter had explained in a private meeting that it sampled a total set of approximately 9,000 accounts per quarter.

The other reason given by Musk is that, Twitter fired senior executives, a third of its talent acquisition team and announced a hiring freeze, which is a direct breach of Twitter’s obligation to “preserve substantially intact the material components of its current business organisation.” While signing the deal, Musk waived due diligence. It means his ability to walk away from the deal is legally constrained. Besides, the team representing Elon would have to demonstrate how the spambots matter to the business, even if there is evidence to prove the existence of spambots. “That’s the thing when you do some research on the company you’re acquiring before you agree to an acquisition. It is a tough position for a buyer to be in,” said Tom Redburn, the chair of Securities Litigation at a premier law firm.

Third, the financial fallouts. Tech stocks globally have seen a massive correction since the deal was announced. Twitter’s stock on the New York Stock Exchange has seen a decline of nearly 29 per cent. To the questions raised on how he would pay the $44 billion, Musk had told the US SEC in May, that the deal would include $33.5 billion in equity, he sold Tesla stock worth around $8.5 billion and lined up about $7 billion from investors including Prince al-Waleed bin Talal of Saudi Arabia, Sequoia, Binance, a16z and others. However, there was a global cryptocurrency downfall and serious warnings of recessionary trends emerging, while Tesla’s stock price too saw a fall of more than 24 per cent since April.

What does it mean?
Elon Musk’s tweets are slated to be used as evidence in the case. Twitter mentioned that the losses faced by Elon Musk's Tesla in the past months is the real reason for backtracking on the deal along. They claim that Musk is faltering on the deal simply because he does not want to buy Twitter anymore. The value drop of Twitter is an unfortunate collateral that is the outcome of Musk using Twitter for altering the value. The US Securities and Exchange Commission has been observing the proceedings of the Twitter deal, one could expect their intervention in the case. The SEC has been critical of Elon’s similar behaviour in the past. Since the deal has already been signed, the case may be extremely difficult one for Elon Musk. Many of the cases of this kind, usually end up in parties re-negotiating the terms of the deal or with one party paying the settlement to walk away. The lawsuit is expected to be a showdown on Wall Street.