Big breakup fees are usually driven by regulatory risk (e.g., antitrust) and that isn’t a significant factor in this deal
Normally the acquirer isn’t personally massively unpopular with the hilariously important employees of a tech company… and normally you’re not dealing with Elon fucking Musk.
This kind of feels like one of those spots nonstandard terms were designed for. This is going to end with Musk basically destroying Twitter as a corporation for 1B. Absolutely every stakeholder in Twitter is going to get wrecked.
Pretty much the same reason Twitter tried to fight off the takeover bid even at a ridiculous (38%) premium, as I undertsand it.
Sort of like if some corporation or rich guy decides out of the blue to buy your house at a huge premium for some reason and the deal requires you to immediately arrange alternate housing, you’re probably going to ask for a lot more than normal ~2% earnest money.
Random question—why would a legitimate reason like regulatory risk have a larger penalty than “dude’s a flake and we don’t know if he is for real” penalty?
Antitrust concerns can sometimes be remedied by divesting assets or overcome through litigation. Both of these options are expensive for the buyer, so having a large break fee can provide them with an incentive to get the deal done.
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Apparently Musk also sucks at video games. Pretty sad for a nerd.
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Musk and Twitter agreed to a so-called reverse termination fee of $1 billion when the two sides reached a deal last month. Still, the breakup fee isn’t an option payment that allows Musk to bail without consequence.
A reverse breakup fee paid from a buyer to a target applies when there is an outside reason a deal can’t close, such as regulatory intermediation or third-party financing concerns. A market dip, like the current sell-off that has caused Twitter to lose more than $9 billion in market cap, wouldn’t count as a valid reason for Musk to cut loose — breakup fee or no breakup fee — according to a senior M&A lawyer familiar with the matter.
If Musk were to walk away simply because he felt he overpaid, Twitter could sue him for billions in damages in addition to collecting the $1 billion fee, the lawyer said. This has happened before, such as when Tiffany sued French luxury goods conglomerate LVMH in 2020 for trying to back out of its agreed-upon deal. That suit settled when Tiffany agreed to lower its sale price from $16.2 billion to roughly $15.8 billion.
I would imagine the usual game is to claim some kind of due diligence red flag, but since mr genius greatest businessperson of all time apparently waived due diligence he can’t do that? Lololol please blow up in this asshole’s face, preferably in conjunction with a Tesla stock crash.
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That tweet likely fucked him too. He could have tried to make up some legit reason to walk away (assume deal has a MAC clause and other similar outs). But instead, he picked a reason that wouldn’t qualify since he waived due diligence.
He can still walk over representation breaches, as long as they add up to an MAE. This is a condition to the buyer having to do the deal:
each of the representations and warranties of the Company contained in this Agreement (except for the representations and warranties contained in Section 4.2(a) and Section 4.2(b)), without giving effect to any materiality or “Company Material Adverse Effect” qualifications therein, shall be true and correct as of the Closing Date (except to the extent such representations and warranties are expressly made as of a specific date, in which case such representations and warranties shall be so true and correct as of such specific date only), except for such failures to be true and correct as would not have a Company Material Adverse Effect
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Choose your preferred timeline …
- Musk completes purchase of Twitter.
- Deal falls through.
- I like to be surprised.
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FYP
Man the Matt Levine email hitting the inbox is the best part of my day.
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As one merger arbitrageur put it to me, “If you’re reading the contract, you’ve lost. Lots of people reading the contract this morning.” Sadly I am one of them, and I do feel like I’ve lost.
Am I the only fucking person that reads this shit before investing in a merger arb play? (I passed on TWTR as a merger arb play because lol Elon, and I’ve never held TWTR as an individual stock.)
https://twitter.com/SnoopDogg/status/1525143525834121217?s=20&t=l4r6DBqrNj-ULY8xu50R9Q
https://twitter.com/SnoopDogg/status/1525145701407084544?s=20&t=l4r6DBqrNj-ULY8xu50R9Q
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Sigh
I think it is relevant here that, in his efforts to buy Twitter so far, Elon Musk has violated all sorts of laws with no immediate repercussions. Both the Securities and Exchange Commission and the Federal Trade Commission are “investigating” the obvious facts that Musk did not make required securities disclosures and antitrust filings as he was buying Twitter stock. The likely outcomes of these “investigations” will be that the SEC and FTC will require Musk to pay small fines, likely considerably less than the money he saved by ignoring the rules. And Musk’s earlier scorched-earth battles with the SEC and other regulators suggest that the agencies will have a hard time getting even those fines, that he will fight fiercely in court even when he transparently broke simple rules.
Elon Musk has made it very clear that the rule of law simply does not apply to him, and this has worked well for him . If he wants to ignore the merger agreement that he signed, he will. If you take him to court, he will put up a brutal fight and make things as unpleasant as possible for you. This puts his counterparties, like Twitter, in a tough position. They have a contract. But so what?
seriously stay away from any stock where he is on the board or ceo.
I picked purchase goes through because I think it ends in the destruction of Musk and Twitter.
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I mean, if he closes, even at a reduced price, he’s going to default on the loans. The company has no cash flow. And while the legal system run by prosecutors and the SEC refuses to do anything, banks will sue him and win (JP Morgan Chase is doing so right now).
He’s kind of fucked here, unless Twitter’s board lets him off the hook.
If the board doesn’t try to force the deal to close, the shareholders will sue.