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

Elon Musk can’t just walk away from his deal to take over Twitter by paying an agreed $1 billion breakup fee. It is not so easy.

Musk tweeted on Friday that he has decided to put his acquisition of Twitter “on hold” while he investigates whether the volume of fake/spam accounts on Twitter is in fact as low as 5%, as the company has long claimed .

He followed that tweet with another reiterating that he still stands by the acquisition.

But he risks a lawsuit from Twitter for breach of contract that could cost the world’s richest people many billions of dollars.

More than a separation fee

Musk and Twitter agreed on a $1 billion reverse termination fee when the two sides reached an agreement last month. Still, the separation fee isn’t an option payment that allows Musk to vouch without consequences.

A reverse breakup fee paid by a buyer to a target company applies when a deal cannot be completed for an external reason, such as B. Government intermediation or third party funding concerns. A buyer can also go for fraud provided the discovery of false information has what is called a “material adverse impact”. A market slump, like the current sell-off that has caused Twitter to lose more than $9 billion in market cap, would not be considered a valid reason for Musk to break away — separation fee or no separation fee, according to a senior M&A attorney who is familiar with the matter.

Musk and investors might want a better deal

Musk’s reasoning for suspending a transaction might be similar: he might want Twitter to lower the sale price. Twitter shares fell more than 8% on Friday and are about 23% below Musk’s agreed purchase price of $54.20 per share. Part of the decline is related to a broader tumble in tech stocks this month. The Nasdaq is down another 11% since the market closed on April 25, the day Twitter accepted Musk’s offer.

“It’s probably a negotiation tactic on behalf of Elon,” Bernstein senior research analyst Toni Sacconaghi said on CNBC’s “Squawk Box” on Friday. “The market has collapsed. He’s probably using the disguise of real active users as a negotiation ploy.”

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Musk may feel some pressure or obligation from other potential Twitter investors to lower the price, even if the world’s richest person is more price-agnostic.

Musk is in talks with outside investors for both equity and preferential funding to reduce his personal stake in Twitter. If he can fetch a lower price for the social media company, returns for outside investors could be higher if Twitter goes back into public ownership or is resold.

Why he could still try to bail

Though he said he remains determined to buy Twitter, Musk may be tempted to throw in the towel given the paper losses he’s suffering on his Tesla stake. Tesla’s shares are down about 24% over the past month.

If Musk believes his Tesla losses are related to his Twitter acquisition and are significant enough to potentially warrant both the $1 billion termination fee and any additional damages he would be charged in court if he loses, outweigh, he might decide it makes sense to walk away.

But he would also have to deal with the reputational damage that comes with breaking a deal. It’s unclear if a future company with this track record would risk selling to Musk.

Musk was not immediately available for comment.

Twitter may have to renegotiate

The way Tiffany and LVMH finally settled, Twitter may not have many good options aside from renegotiating with Musk. The company probably wants to avoid an expensive lengthy legal battle. Employees could flee as the company had no clear plan for the future. Twitter is already cutting costs. On Thursday it fired two executives and said it was putting the hiring on hold.

When Twitter agreed to sell itself to Musk for $54.20, the board didn’t bother to push for a higher price, in part because there were no other interested buyers at that price. Twitter’s board of directors concluded that given this year’s valuation decline in peers like Facebook and Snap, it’s unlikely to trade at higher levels again any time soon.

Twitter’s best result could be accepting a lower offer from Musk.

A spokesman for Twitter was not immediately available for comment.

WATCH: Elon Musk says he’s ‘still determined’ to take over Twitter

https://www.cnbc.com/2022/05/13/elon-musk-cant-just-walk-away-from-twitter-deal-by-paying-1-billion.html Elon Musk can’t just walk away from the Twitter deal by paying $1 billion

Jane Marczewski

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