Twitter Didn’t Seek a Sale. Now Elon Musk Doesn’t Want to Buy

Elon Musk’s showdown with Twitter Inc. has set the stage for what could become one of the most unusual courtroom battles in corporate-takeover history—a spurned acquisition target that never sought to be bought potentially trying to force the buyer who soured on the deal to see it through.

In just over three months, Mr. Musk aggressively pursued a takeover that Twitter first resisted, then he prevailed and reneged—all the while using the very platform to ridicule Twitter and its leaders and drop hints about his shifting intentions.

With Mr. Musk’s attempt to terminate his US$44 billion takeover, Twitter says it plans legal action. In a statement Friday, it indicated it will file a lawsuit in the Delaware Court of Chancery arguing Mr. Musk must close the agreed-upon deal.

Friday evening, he filed papers saying he wanted out, taking aim at Twitter on several fronts and saying the company violated the merger agreement. He accused Twitter of withholding data from him to verify facts about the business and that its statements on the amount of spam on the platform represent material misstatements to regulators. He also argued the company was making critical changes to the ordinary running of the business without his consent, such as imposing a hiring freeze and layoffs.

Corporate-law experts say Twitter appears to be on sounder legal footing than Mr. Musk. The filing didn’t provide evidence to back up his assertion that the estimate was inaccurate or an alternate calculation. “This isn’t even in the ballpark,” said Zohar Goshen, professor of transactional law at Columbia Law School, adding that the impact on a company’s value needs to be so dramatic that its value would be halved, for example.

Layoffs and hiring freezes at tech companies in recent weeks also have become commonplace. Facebook parent Meta Platforms Inc. has cut back on hiring and Mr. Musk’s Tesla Inc. is trimming staff.

The question remains whether it is really possible to force the eccentric billionaire—known for eschewing norms even when it gets him in legal trouble—to buy a company he doesn’t want to own.

“What are they going to do if there is a judgment and he says, ‘Well, I’m still not going to buy it’?” said Mr. Goshen. “They don’t really have tools to force him to go through with it. You don’t put people in jail because they don’t buy something.”

There have been a few examples of buyers being forced to follow through with purchases under the “specific-performance” clause Mr. Musk agreed to, but most were small deals. Never has the concept of a court forcing a buyer to complete a deal been tested on such a large scale.

Most legal clashes over soured deals end in settlements involving a price cut or one-time payment. Mr. Musk agreed to pay a $1 billion reverse termination fee to Twitter if the deal falls apart, triggered under certain scenarios including if his debt financing falls through or regulators try to block the deal. Neither has occurred.

The clash pits multiple white-shoe law firms against each other. Twitter has recently retained Wachtell, Lipton, Rosen & Katz, people familiar with the matter said, while Mr. Musk is using Skadden, Arps, Slate, Meagher & Flom LLP. Twitter has already been working with Simpson Thacher & Bartlett LLP and Wilson Sonsini, while Mr. Musk’s team also includes lawyers at Quinn Emanuel Urquhart & Sullivan.

The agreement caps at $1 billion the amount Twitter could sue for damages, meaning its only options are to sue for specific performance to force him to follow through, or a maximum of $1 billion. A representative for Mr. Musk declined to comment.

The standoff leaves Twitter in a precarious position, given that its prospects as a stand-alone company are daunting in part because of a digital-advertising market in upheaval. Twitter shares closed at $36.81 Friday, 32% below the $54.20-a-share price Mr. Musk agreed to pay.

Facing broadsides from Mr. Musk and a softening ad market, Twitter CEO Parag Agrawal has been trying to prepare it for a difficult period ahead, whether under Mr. Musk’s ownership or not. In May, he announced a hiring freeze and belt tightening, saying he was taking action during the takeover because economic conditions had worsened and Twitter couldn’t assume the deal with Mr. Musk would close. This past week, he cut recruiting staff.

Investors appear unnerved by the latest twist, sending Twitter’s stock 4.81% lower in Friday after-hours trading following Mr. Musk’s disclosure.

Musk’s romp

Mr. Musk’s Twitter romp began with the unannounced purchase of US$22.8 million of Twitter shares on Jan. 31. He kept buying in February and March, building a roughly 9% stake for $2.6 billion and becoming the largest individual investor.

He took public jabs at Twitter, polling his followers on the site over whether it adheres to free-speech principles and publicly toying with the idea of starting a rival. By the time his stake became public on April 4, Mr. Musk had been secretly talking to Twitter for nine days.

He initially reached out to Jack Dorsey, the company’s co-founder and a friend of Mr. Musk’s, then spoke to director Egon Durban, co-CEO of private-equity firm Silver Lake, another acquaintance, according to a public filing on the deal.

The discussions began congenially, with Mr. Musk saying he might want to join the board. Then on Apr. 9, hours before taking the board seat Twitter had agreed to give him, he withdrew. Four days later, he made an unsolicited takeover offer at $54.20 a share and made the offer public the subsequent day.

Twitter initially seemed to turn up its nose but eventually relented—in part because directors concluded that no one else was likely to have the interest or ability to buy the company at the price Mr. Musk was offering. The billionaire agreed to waive detailed due diligence of Twitter’s business.

Even as the transaction was coming together, Mr. Musk was voicing concerns about a darkening economic and business outlook. In late March, Tesla had to temporarily shut its auto plant in Shanghai, the company’s largest, as China implemented pandemic restrictions, sending the stock steadily lower. And, on an April 20 earnings call, Mr. Musk talked about mounting inflationary pressures.

On May 13, Mr. Musk shocked many people involved in the deal with a predawn tweet saying the deal was “temporarily on hold.” He later added he remained committed to seeing it through. He cited questions about Twitter’s estimate that fewer than 5% of its monetizable daily average users are spam or fake accounts.

Fake accounts are certainly a concern for social-media companies. But Mr. Musk had long been aware of fake accounts on Twitter—he tweeted about it at least as far back as 2018—and Twitter’s estimate hadn’t changed in years. Mr. Musk said repeatedly that part of his goal as owner would be, as he put it in an April 21 tweet, to “defeat the spam bots or die trying!”

The May 13 bombshell kicked off weeks of public and private back and forth between Mr. Musk, Mr. Agrawal and lawyers and advisers for both sides, according to Friday’s filing. After Mr. Agrawal on May 16 tweeted an explanation of the company’s spam accounting, Mr. Musk responded with a poop emoji, then followed up with a question: “So how do advertisers know what they’re getting for their money? This is fundamental to the financial health of Twitter.”

Asked on Twitter on May 26 about the prospects of a recession, Mr. Musk said he expected one that could last 12 to 18 months. On May 24, Tesla shares hit their lowest point since June 2021, down nearly 50% from their all-time high in November. The fall had knocked more than $100 billion off Mr. Musk’s net worth, weakening a key asset he was using to help fund the Twitter deal.

As he was lining up financing, Mr. Musk sold $8.5 billion of Tesla stock over three days. Afterward, he said he planned to sell no further shares. He remains the auto maker’s largest investor, with a stake of around 16%, and planned to borrow against his stake. His original financing plan for Twitter included $12.5 billion from margin loans backed by Tesla stock he owns. But Tesla’s share price kept falling, effectively increasing the number of shares Mr. Musk would have to pledge as collateral.

About a month after the deal—with Tesla shares now down 37% from when Mr. Musk agreed to buy Twitter—Mr. Musk filed a revised funding plan that eliminated the margin loans. Instead, he pledged more equity financing. The funding details left questions about how Mr. Musk would come up with roughly $14 billion of his financing package that he still needed to secure himself or through outside investors.

Twitter’s troubles

On April 21, Twitter rival Snap Inc. had spooked investors with disappointing earnings and a stark warning of trouble in the digital ad market. Twitter, soon after, withdrew all previously provided goals and outlooks with its first quarter earnings, and didn’t provide any forward-looking guidance.

On May 12, Twitter’s Mr. Agrawal told staff the company was imposing a hiring freeze and cutting back on spending.

While some Twitter employees expressed optimism that Mr. Musk might reinvigorate the company, many were bewildered about their futures and upset at Mr. Musk’s incessant public hectoring, The Wall Street Journal has reported.

In the month after the deal was inked, executives held more than a dozen companywide or division-wide meetings to address employee questions. One senior Twitter executive, in a May internal note, called it a “chaos tax.”

When Mr. Musk on Friday said he was aiming to abandon the deal, a Twitter executive urged employees to refrain from commenting on the matter, citing planned legal action, according to a message viewed by the Journal. That message was shared with outsiders within an hour.

Mr. Musk on Saturday addressed attendees at the annual Allen & Co. gathering of media and tech leaders in Sun Valley, Idaho, mostly steering clear of Twitter. He focused his remarks on explaining how he forms his opinions and what goes into the conclusions he reaches.

At one point, he did ask his audience how many thought the number of fake accounts on Twitter was less than 5%, said an attendee, and people seemed hesitant to raise a hand.

—Joe Flint and Deepa Seetharaman contributed to this article.

For nearly a decade, workers in a warehouse in Seattle’s Denny Triangle neighbourhood have shipped boxes of shoes, beach chairs, Marvel T-shirts and other items to online retail customers across the U.S.

The operation, called Big River Services International, sells around $1 million a year of goods through e-commerce marketplaces including eBay , Shopify , Walmart and Amazon .com under brand names such as Rapid Cascade and Svea Bliss. “We are entrepreneurs, thinkers, marketers and creators,” Big River says on its website. “We have a passion for customers and aren’t afraid to experiment.”

What the website doesn’t say is that Big River is an arm of Amazon that surreptitiously gathers intelligence on the tech giant’s competitors.

Born out of a 2015 plan code named “Project Curiosity,” Big River uses its sales across multiple countries to obtain pricing data, logistics information and other details about rival e-commerce marketplaces, logistics operations and payments services, according to people familiar with Big River and corporate documents viewed by The Wall Street Journal. The team then shared that information with Amazon to incorporate into decisions about its own business.

Amazon is the largest U.S. e-commerce company , accounting for nearly 40% of all online goods sold in the U.S., according to research firm eMarketer. It often says that it pays little attention to competitors , instead focusing all its energies on being “customer obsessed.” It is currently battling antitrust charges brought last year by the U.S. Federal Trade Commission and 17 states, which accused Amazon of a range of behaviour that harms sellers on its marketplace, including using anti-discounting measures that punished merchants for offering lower prices elsewhere.

Workers filled orders at an Amazon fulfillment center in Garner, N.C., in 2021. PHOTO: JEREMY M. LANGE FOR THE WALL STREET JOURNAL

The story of Big River offers new insight into Amazon’s elaborate efforts to stay ahead of rivals. Team members attended their rivals’ seller conferences and met with competitors identifying themselves only as employees of Big River Services, instead of disclosing that they worked for Amazon.

They were given non-Amazon email addresses to use externally—in emails with people at Amazon, they used Amazon email addresses—and took other extraordinary measures to keep the project secret. They disseminated their reports to Amazon executives using printed, numbered copies rather than email. Those who worked on the project weren’t even supposed to discuss the relationship internally with most teams at Amazon.

An internal crisis-management paper gave advice on what to say if discovered. The response to questions should be: “We make a variety of products available to customers through a number of subsidiaries and online channels.” In conversations, in the event of a leak they were told to focus on the group being formed to improve the seller experience on Amazon, and say that such research is normal, according to people familiar with the discussions.

Senior Amazon executives, including Doug Herrington , Amazon’s current CEO of Worldwide Amazon Stores, were regularly briefed on the Project Curiosity team’s work, according to one of the people familiar with Big River.

Some aspects were more Maxwell Smart than James Bond. The Big River website contains a glaring typo, and a so-called Japanese streetwear brand that the team concocted lists a Seattle address on its contacts page. Big River’s team members list Amazon as their employer on LinkedIn—potentially blowing their cover.

The LinkedIn page of Max Kless, a former eBay executive who led Big River in Germany before moving to a senior role on the team in the U.S., says that he “developed and led a research subsidiary for Amazon in Germany that prototyped and researched new experiences for Small Business sellers and developers.” Kless didn’t respond to requests for comment.

“Benchmarking is a common practice in business. Amazon, like many other retailers, has benchmarking and customer experience teams that conduct research into the experiences of customers, including our selling partners, in order to improve their experiences working with us,” an Amazon spokeswoman said. Amazon believes its rivals also carry out research on Amazon by selling on Amazon’s site, she said.

Focus on Walmart

Virtually all companies research their competitors, reading public documents for information, buying their products or shopping their stores. Lawyers say there is a difference between such corporate intelligence gathering of publicly available information, and what is known as corporate or industrial espionage.

Companies can get into legal trouble for actions such as hiring a rival’s former employee to obtain trade secrets or hacking a rival. Misrepresenting themselves to competitors to gain proprietary information can lead to suits on trade secret misappropriation, said Elizabeth Rowe, a professor at the University of Virginia School of Law who specialises in trade secret law.

Amazon for years has had what it calls a benchmarking team that sizes up rivals to ensure the best experience for people who shop on its site. The team has placed orders on websites such as Walmart.com for delivery around the U.S. to test things such as how long it takes competitors to ship. Other companies also have teams to compare themselves to rivals.

In late 2015, Amazon’s benchmarking team proposed a different sort of project. The business of hosting other merchants to sell their products on Amazon’s platform was becoming increasingly important. So-called third-party sellers on Amazon’s Marketplace, which the company started in 2000, surpassed half of the company’s total merchandise sales that year, and rival retailers had started similar marketplaces.

Amazon wanted to better understand and improve the experiences of those outside vendors. The team decided to create some brands to sell on Amazon to see what the pain points were for sellers—and to sell items on rival marketplaces to compare the experiences, according to the people familiar with the effort.

The benchmarking team pitched “Project Curiosity” to senior management and got the approval to buy inventory, use a shell company and find warehouses in the U.S., Germany, England, India and Japan so they could pose as sellers on competitors’ websites.

The benchmarking team reported into the chief financial officer, Brian Olsavsky , for years, but this year changed to report to Herrington, the consumer chief. Olsavsky and Herrington didn’t respond to requests for comment made through Amazon.

Once launched, the focus of the project quickly started shifting to gathering information about rivals, the people said.

In the U.S., the Big River team started by scooping up merchandise from Seattle retailers holding “going out of business” sales. Some of its first products were Saucony sneakers from a local retailer that was closing. The company registered for a licensing agreement with the popular Marvel superhero franchise to sell Marvel-branded items, and bought items including Tommy Bahama beach chairs from Costco to resell.

In the pitch, Project Curiosity leaders identified online marketplaces that they wanted to sell on, including Best Buy and Overstock.

The top goal was Walmart, Amazon’s biggest rival. But Walmart had a high bar for sellers on its marketplace, accepting only vendors who sold large volumes on other marketplaces first. Big River initially couldn’t qualify to be a Walmart Marketplace seller, but it did sell on Jet.com, which Walmart acquired in 2016 and later closed in 2020. And in India, it sold on Flipkart, the giant Indian e-commerce marketplace in which Walmart owned a majority stake.

In order to meet Walmart’s revenue threshold, the Big River team focused on pumping products through Amazon.com to bolster its overall revenue, some of the people said. Big River’s goal wasn’t to do massive amounts of volume on the competing platforms, but to simply get on them and gain access, they said.

The Amazon spokeswoman said that in 2023, 69% of Big River revenue worldwide was on Amazon.com.

In 2019, Big River finally got onto Walmart’s website. This month, Big River had around 15 products listed on Walmart.com under the seller name Atlantic Lot, including Tommy Bahama beach chairs, cooking woks and industrial-size food containers. In 2023, Big River had more than $125,000 in revenue on Walmart.com alone, according to a person familiar with the matter.

Walmart wasn’t aware that Amazon ran the seller accounts on the Walmart and Flipkart sites before the Journal told it, according to a person familiar with the matter.

Rivals’ logistics services

Atlantic Lot is listed as a “Pro Seller”—a distinction Walmart says is for “top-performing Walmart Marketplace sellers.” Listings show that Walmart Logistics, another Amazon rival, handles storage and shipping for it.

Amazon at the time also was building up its logistics business to store and ship items for sellers for a fee to compete with FedEx and United Parcel Service . The business has boomed over the past decade. Amazon’s total revenue from what it calls third-party seller services has grown nearly twelvefold since 2014 to $140 billion last year, accounting for nearly a quarter of Amazon’s total.

To get information about rival logistics services, the Big River team stored inventory with companies including FedEx. Other targets, according to an internal document, included UPS, DHL, Deliverr and German logistics company Linther Spedition.

FedEx in 2017 launched FedEx Fulfillment, a competitor to Fulfillment by Amazon, for offering logistics to sellers. Big River was accepted into the FedEx Fulfillment program as an early customer, and the team received early details about pricing, rate cards and other terms as a result of the partnership, according to the people. FedEx had several phone calls and email exchanges with Big River team members who represented themselves as Big River employees and didn’t disclose their employment at Amazon, according to some of the people.

The team presented its findings from being part of the FedEx program to senior Amazon logistics leaders. They used the code name “OnTime Inc.” to refer to FedEx. Amazon made changes to its Fulfillment by Amazon service to make it more competitive with FedEx’s new product as a result of the information it learned from the partnership, according to one of the people.

For such meetings, the team avoided distributing presentations electronically to Amazon executives. Instead, they printed the presentations and numbered the documents. Executives could look at the reports and take notes, but at the end of the meeting, team members collected the papers to ensure that they had all copies, the people said.

Big River became a customer of FedEx’s fulfillment program, a competitor to Fulfillment by Amazon. Above, a FedEx facility in Queens, New York. PHOTO: GABBY JONES FOR THE WALL STREET JOURNAL

Amazon took other measures to hide the connection with Big River. Staffers were instructed to use their second, non-Amazon email address—which had the domain @bigriverintl.com—when emailing other platforms to avoid outing their Amazon employment.

“We were encouraged to work off the grid as much as possible,” said one of the former team members, about using the outside email.

Amazon’s internal lawyers reminded Big River team members not to disclose their connection to Amazon in their conversations with FedEx, according to an email viewed by the Journal.

Staffers, who worked in private areas of Amazon offices, were told not to discuss their work with other Amazon employees who weren’t cleared to know about the project. In the early days, some Big River team members had to take time away from their Amazon desk jobs to go to the warehouses to fulfill orders and pack them in boxes to send out.

When gaining access to rival seller systems, Big River members were instructed to take screenshots of competitor pricing, ad systems, cataloging and listing pages, according to the people. They weren’t allowed to email the screenshots to Amazon employees, but instead showed the screenshots to the Amazon employees on the Marketplace side of the business in person so they didn’t create a paper trail, some of the people said. Amazon then made changes it believed improved the seller experience on its site based on the information.

The Amazon spokeswoman said the team was secretive so that it wouldn’t get any special treatment as a seller on Amazon.com.

Still, there were telltales. Registration documents filed with the Washington Office of the Secretary of State for Big River Services, while not mentioning Amazon, list a management team made up of current and former Amazon employees, including lawyers. The management team lists its address as 410 Terry Ave. in Seattle, which is Amazon’s headquarters.

Corporate filings for Big River in the United Kingdom and other foreign countries also named officials who are senior Amazon employees and lawyers. In one U.K. disclosure, Amazon is named as owning more than 75% of the company.

Amazon officials felt confident that competitors wouldn’t look up filings to see who was behind the company, some of the people said.

A Las Vegas conference

Some team members were uncomfortable with the work they were doing, according to some of the people.

Among the anxiety-inducing activities was representing themselves as employees of Big River in person while attending conferences thrown by rivals. For instance, team members attended eBay’s Las Vegas conference for sellers, according to some of the people. EBay describes the event as a way for sellers to meet with eBay management and learn of planned big changes coming for sellers and “exclusive information.”

Benchmarking-team leadership ordered up what Amazon calls a PRFAQ that would outline what to do if competitors or the press discovered the project. In the event of a leak, leadership was to say that the group was formed to improve the seller experience on Amazon.com, and that Amazon pays attention to competition but doesn’t “obsess” over it. They were also told to act like this was normal business behavior in the event of a leak, according to one of the people.

In 2017, Amazon formally changed the name of Project Curiosity to the Small Business Insights team to make it sound less cryptic, some of the people said.

The Big River team invented its own brands to sell on the competing sites, including “Torque Challenge” and “Crimson Knot.”

Teams often changed the brand name once they sold out its inventory, creating new brands when they received new products.

In India, Amazon gained access to e-commerce giant Flipkart in March 2018 with the Crimson Knot brand, around the time rumors of a Walmart acquisition swirled in local media. Walmart bought a majority stake in Flipkart in May of that year.

Crimson Knot makes wooden home goods, with its website’s “About Us” page saying: “Based in a small wood workshop in Bangalore, our dedicated team of 8 skilled craftsmen work consistently to handcraft each piece from scratch, transforming them into stunning showstoppers.”

Crimson Knot still lists products on Flipkart and stores them with Flipkart’s logistics services.

The endeavour wasn’t designed to make money. In 2019, for instance, the Indian Big River team projected revenue of $165,000 while it expected costs of $463,000, according to an internal company document.

Each of the five countries operated a little differently to better test different programs. Globally, in total, Big River gained access to rival marketplaces including Alibaba, Etsy, Real.de, Wish and Rakuten, among many other platforms. In 2019, the team set a goal to get onto 13 additional new marketplaces, according to an internal company document.

The Amazon spokeswoman declined to comment on the number of rival websites Big River operates on.

The Japanese team went so far as to create a streetwear brand with its own website and custom-designed products. They called it Not So Ape, saying it was founded in Tokyo in 2017 and “inspired by the street style we see everyday.”

Not So Ape—which isn’t related to an upscale Japanese streetwear brand called A Bathing Ape—says on its website: “Our name stems from our belief that creative expression is what truly separates us from primates.” Not So Ape has Instagram and TikTok accounts, and its site continues to offer products such as $50 knit beanies and $95 hoodies.

Not So Ape is sold on Yahoo Japan’s marketplace, Zozotown, and uses rival payment services from Shopify, Google and Meta platforms. Its U.S. website is hosted by Shopify—which was the target of a previous effort by Amazon, code named “Project Santos,” to replicate parts of its business model, the Journal has reported.

Not So Ape’s English-language site’s terms of service says it is operated by Big River and lists a Seattle contact address of “2300 7th Ave, Ste B100, Back Entrance”—a building adjacent to a main Amazon campus.