Twitter shares fall in pre-market trading after Elon Musk backed out from $44B deal, Twitter assembles legal team

After Elon Musk declared he is attempting to revoke his $44 billion acquisition of the social networking company, Twitter shares fell precipitously in early premarket trade on Monday.

The company's shares dropped by almost 9% before cutting some of their losses to trade 7% lower. In contrast, the price of Tesla stock increased somewhat in premarket trading.

Musk's lawyer informed Twitter's leadership on Friday that he intends to dissolve the agreement. According to the billionaire, the company is not being transparent the activities on its platform because of the large number of bots and fraudulent accounts on Twitter.

Twitter insists that it has provided Musk with all the information he needs to evaluate its assertion that spam accounts represent only 5% of monetizable daily active users.

In order to impose the agreement, Twitter will file a lawsuit in the Delaware Court of Chancery, according to board chair Bret Taylor.

Musk reacted on Monday by sharing a meme that made fun of Twitter management for the failed transaction. It includes pictures of Musk giggling and text that alleges the business is attempting to "force" him to purchase it in court.

With more than 100 million followers, Musk is among Twitter's most followed users.

Musk claimed that Twitter had not provided him with sufficient information regarding the number of spam and fake accounts, which is why he withdrew from the agreement.

In a filing, Musk claimed that Twitter is in violation of several clauses of the Agreement and that it appears to have made false and deceptive statements in order to enter into the Merger Agreement.

The news of Musk backing out of the deal isn’t shocking to many speculators. Wall Street speculators had already set a very low probability that the deal will close, or at least that it will do so at the agreed-upon share price of $54.20. The merger arb spread on the company's shares at the end of trading on Thursday was almost 40%. Deals are often anticipated to close at spreads between 3 and 5 percent.

According to Bloomberg on Sunday, Twitter has hired Wachtell, Lipton, Rosen & Katz LLP to represent it in a pending lawsuit. 

Bret Taylor, Twitter's chairman promised on Friday that the company would pursue legal action in the Delaware Court of Chancery to force Musk to fulfill his part of the agreement. Twitter has gathered legal counsel in preparation for the lawsuit.

Musk may be required to pay Twitter shareholders $54.20 per share, as he promised in the agreement announced on April 25, if the court decides against him. Musk would be free to go if the judge ruled in his favor, though he most likely would still be required to pay the $1 billion break-up fee.

The 73-page purchase agreement's intricate wording will be thoroughly scrutinized by the judge in this case.