Elon Musk and Twitter at odds over terms of agreement to close deal

Representatives of Elon Musk and Twitter Inc. are still grappling with terms of an agreement that would enable his purchase of the social-media company to proceed, continuing a monthslong drama surrounding the fate of the blockbuster deal.

The discussions are the latest the two sides have held as a courtroom clash draws nearer. They quietly held unsuccessful talks about a possible cut to the price of $44 billion for the social-media platform before Mr. Musk reversed course Monday and said he would return to the original agreement’s terms, people familiar with the matter said.

As of late Wednesday, representatives of Mr. Musk and Twitter were trying to hash out the details of his proposal this week to stick to that original agreement, the people familiar with the matter said. Sticking points include what would be required from both sides for litigation over the stalled deal to be dropped and whether the deal’s closing would be contingent on Mr. Musk’s receiving the necessary debt financing, some of the people said.

There was initially hope a deal could be reached Tuesday or Wednesday, averting a trial scheduled to start Oct. 17, the people said. The two sides have agreed to delay Mr. Musk’s deposition, which was scheduled to begin Thursday in Texas, some of the people said, to continue efforts to reach agreement on how to move forward.

The informal discussions about a cut in the $44 billion purchase price happened in a series of conference calls in recent weeks between lawyers and ended after the two sides failed to agree on terms of a potential deal, the people said.

The price-cut talks had broken off before Mr. Musk caught Twitter off guard by sending its lawyers a two-sentence letter proposing to move forward on the original terms.

Mr. Musk’s apparent change of heart Monday surprised many observers. The Tesla Inc. chief executive had spent the past several months trying to back out of the deal after alleging that Twitter had misled him about key elements of its business, including the amount of spam on its platform.

In July, Mr. Musk formally moved to walk away from the deal, prompting Twitter to sue him to follow through with the transaction on the agreed-upon terms. Mr. Musk countersued, alleging that Twitter had misrepresented the condition of its business and key metrics about the users on its platform, which Twitter has denied.

For now, the Delaware Chancery Court judge presiding over the legal battle is pressing ahead with trial preparations.

Chancellor Kathaleen McCormick ordered Mr. Musk’s team Wednesday to search for any more possible electronic messages requested by Twitter as the two sides prepare for a five-day, nonjury trial in Wilmington, Del. She said neither party had moved to stop the litigation.

“The parties have not filed a stipulation to stay this action, nor has any party moved for a stay," the judge wrote Wednesday. “I, therefore, continue to press on toward our trial set to begin on October 17."

The Musk team has been aggressive in pushing for broad information from Twitter, including a range of employee communications and data related to spam and fake accounts. Those requests at times prompted frustration from Chancellor McCormick. She granted some requests but denied others, and once called Mr. Musk’s data requests absurdly broad.

Legal experts have maintained from the beginning that Twitter appeared to have the stronger case, in part because Mr. Musk waived due diligence before agreeing to the deal and the merger agreement gave Twitter the right to sue him to follow through with it under a concept called “specific performance."

Still, even a small risk of Mr. Musk’s prevailing in a trial could be too much for a company the size of Twitter to bear. For this reason, the majority of broken deal cases end in negotiated settlements, often with a small price cut. Such was the case with litigation between LVMH Moët Hennessy Louis Vuitton SE and Tiffany & Co. in 2020. Those parties agreed to a nearly 3% price cut to avert a trial.

While Twitter’s stock price has held up because of Mr. Musk’s potential acquisition, its performance has declined. The company reported a drop in revenue in the second quarter that it blamed on weakness in the advertising industry and uncertainty related to Mr. Musk’s acquisition.

Mr. Musk has given few specific details about his plans for Twitter, but he has said he wants to transform Twitter as a private company and unlock what he called its extraordinary potential as a platform for free speech.