Twitter-Musk Trial Set for October in Lawsuit Over Stalled $44 Billion Takeover

“Those concerns are on full display in the present case,” Chancellor McCormick said. “Typically, the longer the merger transaction remains in limbo, the larger the cloud of uncertainty cast over the company and the greater the risk of irreparable harm to the sellers.”

Twitter argued the case should be accelerated because shareholders and its business have been left in limbo by Mr. Musk’s move this month to flee the deal, citing the prevalence of spam or fake accounts on the platform. In the hearing, Twitter’s lawyers said the lawsuit doesn’t turn on the amount of spam and fake accounts because the merger agreement didn’t make any promises about that metric. Twitter’s securities filings say the number of fake and spam accounts could be higher than the company’s estimates, he noted.

“That’s not what this case is about,” attorney

William Savitt

said Tuesday. It’s a “manufactured issue,” he said.

Mr. Musk says he needs more time to investigate the spam and fake accounts issue, which he says is fundamental to Twitter’s value and preparing for the trial will be “extremely fact and expert intensive, requiring substantial time for discovery.” In the hearing Tuesday, Mr. Musk’s lawyer said Twitter is trying to railroad him to complete the deal while burying the truth over the number of fake and spam accounts. He said Mr. Musk has a bigger economic interest in the company, as the second-largest shareholder, than the company’s entire board, and therefore has no interest in stalling to harm the company.

Mr. Musk says Twitter’s estimate that fewer than 5% of its monetizable daily active users are spam or fake is questionable, and probably too low.

Twitter, which filed its lawsuit last week, says its process for estimating fake accounts and malicious bots is rigorous.

“There is no reason to go into how many bots there are if a fair reading of the contract said Musk essentially waived that right,” said James Cox, a professor of corporate and securities law at Duke University.

Mr. Musk has cited at least two different reasons tied to spam and fake accounts to leave the deal. One is that Twitter allegedly misstated facts about that data in a way that could have a material adverse effect on its business. Delaware law allows companies to nullify mergers if a material adverse effect has occurred, but its courts have also tightly circumscribed the conditions for such an outcome.

Mr. Musk says his other basis to exit is that Twitter has allegedly withheld information about fake accounts, behavior that would violate its commitments to the merger agreement. “The limited information Twitter has provided calls its representations into serious doubt,” Mr. Musk’s lawyers wrote last week in a court filing.

Mr. Musk may have sought more time for the lawsuit because financial settlements are more likely to occur in drawn-out legal cases, Mr. Cox said. Twitter is seeking a remedy known as “specific performance,” meaning Mr. Musk would have to go through with the $44 billion acquisition.

Twitter has also said Mr. Musk has buyer’s remorse over the decline in share prices since he struck the deal in April. Mr. Musk’s personal wealth has declined by more than $100 billion from its November 2021 peak.

Write to Dave Michaels at dave.michaels@wsj.com