On Friday, Mr Musk’s lawyers wrote to Twitter to cancel the deal, claiming the company had “not complied with its contractual obligations” and ignored requests for information about the number of fake accounts on the social network.
Twitter has said fewer than 5pc of users are fake or spam accounts. Mr Musk believes the number could be as high as 20pc. Neither side has publicly shared the methodology for their estimates.
Twitter chairman Brett Taylor said the company plans to sue Mr Musk in a Delaware Court to force him to go through with his takeover offer. An out-of-court settlement is also a possibility.
On Monday, it was reported that Twitter had hired US law firm Wachtell, Lipton, Rosen & Katz for the legal fight against Mr Musk. The Tesla chief executive has turned to Quinn Emanuel Urquhart & Sullivan.
Under the terms of the agreed takeover, Mr Musk faces a $1bn termination fee even if efforts to force his to buy Twitter prove unsuccessful.
Legal experts have said Mr Musk will have to prove to the court that the number of “bots” on Twitter would have a significant impact on the company’s financial earnings going forward in order to successfully get out of the deal.
Mr Musk has faced repeated questions about how serious he is about running the social network. His offer price of $54.20 per share included the numbers “420”, a reference to US cannabis culture, and his apparent interest in him in the bid has appeared to wane as weeks have progressed.
Shares on Twitter fell 7pc in early trading in New York to as low as $34, even further below Mr Musk’s offer price of $54.20.
Tesla shares fell 5pc, having failed 40pc since the start of the year amid a tech sell-off and concerns about the Twitter takeover.