As Twitter and Elon Musk stare at contentious legal battle, employees 'could leave in droves,' tech analyst says. 'They're hung out to dry.'

• Elon Musk is attempting to terminate his $44 billion bid to buy Twitter, per a letter filed with the SEC.
• Both parties face a long legal battle that could hurt Twitter more than Musk, an analyst told Insider.

As Elon Musk $4 his $44 billion deal to purchase Twitter, both parties are staring down $4 in the Delaware courts where corporate cases are often heard. And things could get ugly — potentially more so for the social media company.

"It's a code red for the company," Daniel Ives, a tech analyst and managing director for Wedbush Securities, told Insider. "Employees could leave in droves."

$4 Musk is attempting to walk away from the deal based on a claim — regarding the company's number of spam accounts — that doesn't quite meet Deleware's threshold for what would be a "material adverse effect" that allows a buyer to exit a deal.

But outside of the legal leg Musk has to stand on, Twitter and its employees will not come out of what could be a long, drawn-out court battle unscathed, Ives said.

As the company's metrics are further scrutinized, the public company will be "viewed as damaged goods," he said.

"It throws the company into a tailspin," Ives said. "I think Twitter's gonna be bruised through this. It's gonna have to navigate this."

Musk's $44 billion deal to purchase Twitter was announced in late April, putting the company at $54.20 a share.

Musk had plans to overhaul the platform's free speech rules, an aspect of Twitter Musk has repeatedly railed against, and take the company private.

Employees have previously threatened to leave Twitter, pending Musk's takeover.

"It's all about Elon," $4 "There will be some sort of exodus event from those who do not approve of him."