Friday, October 7, 2022

Elon Musk can’t just walk away from Twitter deal by paying $1 billion

Elon Musk can’t just walk away from his deal to amass Twitter by paying an agreed-upon $1 billion breakup payment. It is not that straightforward.

Musk tweeted Friday that he has determined to put his acquisition of Twitter “on hold” as he researches whether or not the quantity of faux/spam accounts on Twitter is definitely just 5%, as the corporate has lengthy claimed.

He adopted that tweet with one other reiterating that he’s nonetheless dedicated to the acquisition.

However he dangers a lawsuit from Twitter for breach of contract that would value the world’s wealthiest particular person many billions of {dollars}.

Greater than a breakup payment

Musk and Twitter agreed to a so-called reverse termination payment of $1 billion when the two sides reached a deal last month. Nonetheless, the breakup payment is not an possibility fee that permits Musk to bail with out consequence.

A reverse breakup payment paid from a purchaser to a goal applies when there’s an outdoor motive a deal can’t shut, akin to regulatory intermediation or third-party financing considerations. A purchaser may also walk if there’s fraud, assuming the invention of incorrect info has a so-called “materials hostile impact.” A market dip, like the present sell-off that has induced Twitter to lose more than $9 billion in market cap, would not depend as a sound motive for Musk to chop free — breakup payment or no breakup payment — in line with a senior M&A lawyer accustomed to the matter.

Musk and buyers might want a greater deal

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Musk might really feel some stress or obligation to different potential buyers in Twitter to decrease the worth, even when the world’s wealthiest particular person is extra value agnostic.

Musk is in talks with outside investors for each fairness and most well-liked financing to reduce his private stake in Twitter. If he can get a cheaper price for the social media firm, the returns could possibly be greater for outdoor buyers if and when Twitter returns to public possession or is resold.

Why he may nonetheless attempt to bail

Although he stated he remained dedicated to purchasing Twitter, Musk could also be tempted to throw within the towel given the losses he is incurring on paper with regard to his Tesla fairness possession. Shares of Tesla are down about 24% over the past month.

If Musk believes his Tesla losses are associated to his Twitter acquisition and are vital sufficient to doubtlessly outweigh each the $1 billion termination payment and any extra damages he can be charged in courtroom if he loses, he may resolve strolling away made sense.

However he’d additionally should deal with the reputational harm related to breaking a deal. It is unclear any future firm would threat promoting to Musk with that observe file.

Musk was not instantly out there to remark.

Twitter might have to renegotiate

Just as Tiffany and LVMH finally settled, Twitter might not have many good choices outdoors of renegotiating with Musk. The corporate probably would need to keep away from an costly protracted lawsuit. Staff might flee as the corporate would not have a transparent future plan. Twitter’s already cutting costs. On Thursday it dismissed two executives and stated it is placing hiring on maintain.

When Twitter agreed to promote itself to Musk for $54.20, the board did not hassle pushing for the next value in part because there were no other interested buyers at that value. Twitter’s board got here to the conclusion it wasn’t more likely to quickly return to buying and selling at greater ranges given this 12 months’s valuation decline in peer shares akin to Facebook and Snap.

Twitter’s greatest final result might just be to simply accept a decrease supply from Musk.

A spokesperson for Twitter wasn’t instantly out there to remark.

WATCH: Elon Musk says he’s “still committed” to Twitter acquisition

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