It is clear that Elon Musk no longer wants to buy Twitter Inc., at least not at the price he negotiated. But Twitter shouldn’t leave without at least $ 1 billion, and potentially much more, for the hassle.
Musk’s bid for Twitter TWTR,
it’s become one of the strangest merger and acquisition sagas Silicon Valley has ever seen. Here’s a quick rundown: Musk bought some Twitter shares, agreed to be on the board, terminated that deal, and made an offer to buy the company and make it private, and that offer was accepted. However, as stock prices have fallen in the general fall of the market, Musk has obviously suffered from the buyer’s remorse and says the deal is “pending”.
One problem with this move is that it doesn’t exist.
“There is no procedural step in closing a company called a ‘pending agreement,’ there is no pending agreement ‘incorporated into the agreement,'” said Stephen Diamond, an associate professor at the faculty. of Law of the University of Santa Clara.
It is sometimes difficult to determine what is true when it comes to Tesla Inc.’s TSLA.
executive director, but one thing that is really obvious is true in this case: both parties have a contract and it is legally enforceable. Musk is fishing for reasons why he could stop paying $ 44 billion for a company that would be lucky enough to trade half of that valuation without the offer, and is trading nearly 30% lower even with she, but probably hopes to avoid a $ 1 billion break. fee that is part of the contract.
“Getting your feet cold isn’t a sufficient basis for retiring … so presumably right now if you really wanted to, I would have said, and they would demand the breaking rate,” Diamond said, adding that most of the which has been devoted to Musk. lately there is noise “to find some leverage to renegotiate the deal.”
This noise has focused on the number of bot accounts on Twitter, which Musk believes exceeds the amount of 5% that Twitter is carefully claiming in its statements to the Securities and Exchange Commission. Musk claimed over the weekend, without providing any evidence, that robots actually account for between 20% and 90% of Twitter users.
Twitter CEO Parag Agrawal showed Musk how to use real evidence and knowledge about the internal workings of social media to talk about robots on Twitter after Musk made a lot of noise. Musk, in response, sent Agrawal a poop emoji, showing exactly the level of speech he is able to have on the subject.
If you feel like all of this is like something that should have been discovered in the due diligence part of the deal-making process, make no mistake. However, Musk waived his right to conduct due diligence on Twitter before signing the agreement, as described in the SEC’s Twitter presentation detailing the pre-acquisition period that was present Tuesday morning.
“Mr. Musk also revealed that his proposed acquisition was no longer subject to the completion of financing and due diligence of the business, “he said on Twitter in his summary of how he lowered the deal.
Musk is also not learning about robots on Twitter for the first time. As Diamond pointed out, Musk spoke of resolving the bot problem as one of the reasons he was buying Twitter in the press release announcing the deal.
“Isn’t he buying it to improve it, so he can improve it?” Diamond asked.
It may be helpful to recap here and use a metaphor. What Musk has done is like a normal person agreeing to give up all inspection contingencies to buy a home, signing a contract with the home while publicly proclaiming “I will fix this place from the landfill it is now.” then decide during the closing period that the house is too dumpy and demand that they be let out of the contract while personally attacking the seller.
So what should Twitter do with Musk? Let me ask you what you would do as a homeowner in this situation: let the buyer walk away, sell the house at a reduced price, or keep the buyer’s feet on fire, and get all the pennies guaranteed in the contract. did you sign
For the Twitter board and its executives, they must continue to move forward with the agreed agreement, and they must ignore Musk’s actions, which may be crossing some legal lines, until they can close a deal. At the very least, Musk would have to pay $ 1 billion if he finds that he has not closed the deal.
In addition, since his recent actions on Twitter could be considered despicable to the company, which he agreed not to do when he signed the merger agreement, he could eventually be the subject of further legal action by Twitter.
“They don’t want to sue that guy, they want to sell the company,” Diamond said. “At the end of the day, what’s the value of such demands? They’ll focus on moving forward with the deal as agreed, and that’s it, and they’ll let Musk try to find some room to renegotiate the price.”
And the board could try to do much more than that. If Twitter maintains its end of the deal and Musk does not, the board could sue him for “specific performance,” which would force him to carry out the acquisition as specified in the contract, if successful. While this is unlikely and would likely lead to a long and arduous legal battle, the threat of this could lead to a more than $ 1 billion deal that seems obvious to Musk in this situation. Diamond noted, however, that the addition of the specific performance clause, which is somewhat rare, is an indication that Twitter was aware that Musk could behave in this way.
The Twitter board owes its shareholders every penny it can take out of the pockets of the richest man in the world after what the company, its investors and its employees have been going through over the past month. It is their fiduciary duty to do so, and Musk has given them every reason to stand firm against him.