Twitter has won the first legal skirmish in its attempt to force Elon Musk to complete a $44bn (£36.7bn) takeover of the social media company, after a judge ruled that a trial will take place in October.
Legal experts said the ruling in Delaware was good news for Twitter, which had asked for a fast-track process to settle the dispute. A Delaware judge said there was a “cloud of uncertainty” hanging over Twitter and accepted the company’s argument that a delay would cause severe damage to the business.
“Delay threatens irreparable harm,” said Chancellor Kathaleen McCormick, the head judge of Delaware’s court of chancery. “The longer the delay, the greater the risk.” McCormick added that the court was able to “quickly process complex litigation.”
Twitter is ultimately seeking a legal verdict that will force Musk to go ahead with an agreed transaction that values the company at $54.20 per share. Musk pulled out of the deal this month, citing concerns over the number of spam accounts on the social media platform.
A lawyer representing Twitter at the virtual hearing accused Musk of “attempted sabotage”.
“He’s doing his best to run Twitter down,” said attorney William Savitt.
On 8 July ,Musk said he was terminating the deal for three broad reasons: Twitter had breached the agreement by failing to provide enough information on spam accounts; that it had misrepresented the number of spam accounts in its disclosures to the US financial watchdog; and that it had breached the agreement by failing to consult with him when firing senior employees recently.
Musk’s attorney, Andrew Rossman, said the accusation that Musk was trying to damage the business was “preposterous.”
“He has no interest in damaging the company,” said Rossman, noting the the Tesla chief is Twitter’s second largest shareholder with a far larger stake – at more than 9% – than the entire board.
Savitt emphasized the importance of an expedited trial for Twitter to be able to make important business decisions affecting everything from employee retention to relationships with suppliers and customers. He also pointed out that the debt financing supporting the deal expires on 25 April next year, hastening the need for a swift legal resolution.
Rossman said more time is needed because it is “one of the largest take-private deals in history” involving a “company that has a massive amount of data that has to be analyzed. Billions of actions on their platform have to be analyzed.” The quicker legal process now gives Musk less time to assemble analysis backing his argument that Twitter has underestimated spam account numbers.
McCormick asked the parties to work out the schedule for the October trial, which she said would last five days.
Legal observers said the ruling was a boost for Twitter, which is demanding that Musk be held to a legal agreement struck in April to buy the business.
“This is a good sign for Twitter,” said Robert Frenchman, a partner at New York law firm Mukasey Frenchman.
“The last thing Twitter wants is a long drawn-out fight about the counting and combatting of spam bots, issues that are only tangentially relevant to whether Twitter breached its obligations under the stock purchase agreement.”
Commenting on the ruling, Brian Quinn, a professor at Boston College law school, said the ruling was a victory for Twitter, which had been seeking a September trial in Delaware, the US state that is its corporate base.
“That’s a win for Twitter. The court granted expedition, not exactly on Twitter’s very aggressive schedule, but very close. October for trial isn’t all that far away and the lawyers will have a lot to do to prep for trial.”
Twitter’s argument for closing the deal is encapsulated in its 62-page lawsuit against Musk, in which it argues that the world’s richest man has no proof that its spam accounts are more than 5% of its daily active user base, that it has cooperated with his requests for information related to the spam issues and that its firing of employees was part of the normal course of running the business.
Carl Tobias, Williams chair in law at the university of Richmond, said both sides could decide to settle “because as case will consume much time and energy, and distract Twitter and Musk from smoothly operating their essential businesses”.
He added that a trial could tarnish both sides.
“It may also undermine the parties’ reputations and cause the value of the companies’ stocks to decrease.”
Shares in Twitter rose 2.8% in early afternoon trading to $39.48 on Tuesday.