Short-seller Hindenburg Research has said it had taken a long position in Twitter shares and warned the social media firm's lawsuit against Elon Musk, the world's richest man, could pose a threat to his companies.
Twitter's shares rose about 6% to $35.90 on the news, a day after the company sued Musk for violating his $44 billion deal and asked a Delaware court to order him to complete the merger at the agreed $54.20 per Twitter share.
Musk, who is the chief executive officer at Tesla and heads SpaceX, said on Friday he was terminating the deal because Twitter violated the agreement by failing to respond to requests for information regarding fake or spam accounts on the platform.
Hindenburg did not elaborate on the threat the lawsuit poses to Musk, but legal experts have said that from the information that is public Twitter would appear to have the upper hand.
"We have accumulated a significant long position in shares of Twitter. Twitter's complaint poses a credible threat to Musk's empire," Hindenburg said in a tweet.
Twitter was not immediately available for a comment.
The legal face-off is the latest twist in the months long saga that began after Musk in April bought a stake in Twitter and later offered to buy the company.
Then in May, he put the buyout on hold until Twitter proved that spam bots account for less than 5% of its total users, even as he had gathered investors to fund a portion of his deal.
Hindenburg, which earlier had a short position, had said in May that Musk's offer could get repriced lower if he walked away from the deal.
In a memo to Twitter staff yesterday, Twitter chief executive Parag Agrawal sought to reassure employees about the future.
"We will prove our position in court and we believe we will prevail," he wrote in the note, which was seen by Reuters.
Legal experts have said that from the information that is public Twitter would appear to have the upper hand.
"In its complaint Twitter is taking a strong position that Musk had a case of buyer's remorse - and that, and not bots, is the reason for his decision to walk away from the deal," said Brian Quinn, a professor at Boston College Law School.
"The facts Twitter presents here make an extremely strong argument in favor of Twitter getting this deal closed," he added.
Musk is among Twitter's most-followed accounts and the lawsuit included images of several of his tweets, including a poop emoji, that the company said violated the merger's "non-disparagement" clause.
Musk tweeted the emoji on May 16 in response to a pair of tweets by Agrawal, explaining the company's efforts to fight spam accounts.
It also included an image of a text message Musk sent Agrawal after Twitter sought on June 28 reassurances about Musk's financing for the deal.
"Your lawyers are using these conversations to cause trouble," Musk texted to Agrawal. "That needs to stop."
Twitter noted that after Musk said he was terminating the deal, he sent tweets on Monday that Twitter said suggested his requests about spam were part of a plan to force spam data into the public sphere.
"For Musk, it would seem, Twitter, the interests of its stockholders, the transaction Musk agreed to, and the court process to enforce it all constitute an elaborate joke," the lawsuit said.