The Twitter deal leaves Elon Musk without an easy way out

Since the financial crisis, corporate lawyers have been aspiring to create the ultimate iron ore consolidation agreement that will keep buyers from falling behind on cold feet.

The “bulletproof” modern contract deal is now facing one of its biggest tests, as Tesla boss and the world’s richest man Elon Musk is openly enjoying the possibility of canceling his $ 44 billion deal for Twitter.

Musk tweeted earlier this week that “the deal can’t go ahead” unless the social media platform provided details about the fake account, a request that Twitter seems unlikely to fulfill. Twitter’s board, meanwhile, has stated its commitment to “complete the transaction as soon as possible at agreed prices and terms.”

Just abandoning the contract is not an option. Both Musk and Twitter have signed a merger agreement, which states that “the parties will use their best reasonable efforts to complete and execute the transactions envisaged by this agreement.”

With tech stocks falling – pulling Tesla’s share price, which is the basis of Musk’s fortunes and securing a margin loan to buy Twitter – all eyes are on the billionaire’s next move.

Can musk go to 1 billion?

The agreement includes a 1 billion “reverse termination fee” that will be owed if the mask is withdrawn from the merger agreement. However, if all other closing conditions are met, and only মাস 27.25 billion of equity remains to be shown at the closing for the mask, Twitter may try to close the deal with the mask. This legal concept, known as “fixed performance”, has become a common feature of leveraged purchases since the financial crisis.

In 2007 and 2008, leveraged buyouts typically included a reverse completion fee that often allowed a firm supporting the acquisition to receive a discount of 2 to 3 percent of the contract price. The sellers then believed that private equity groups would follow and close their transactions to maintain their reputation. But some dragged out those agreements, leading to a number of court battles involving prominent companies such as Cerberus, Blackstone and Apollo.

Since that era, sellers have implemented much higher closing fees as well as specific performance clauses that would effectively shut down buyers. Most recently, a Delaware court ordered private equity firm Kohlberg & Co to stop buying a cake decorating business called Decopack in 2021.

Kohlberg argued that it was allowed to withdraw from the agreement because the decopack business suffered a “material adverse effect” when the epidemic hit between signing and closing. The court rejected that argument and ruled that Decopack could force Kohlberg to resign – which it did.

Can Musk sue to get out of the contract?

If Musk wants to go to court, he can claim that Twitter has misrepresented the state of his business, with regulator filing estimates that bots have 5 percent or less of its users.

It would be easy enough to file such a lawsuit, but it would be much harder to prove that the bot issue justified the termination of the contract. Under the consolidation agreement, Mask must show that there is a “material adverse effect” of any misrepresentation, a solid standard that the court can rarely meet. He has explicitly stated in his proposal to the board that he is doing his best on Twitter.

“It’s hard to argue in court that a material adverse event happened if you can’t show how it affected earnings – and the impact would be huge,” said Gustavo Schweid, a professor at New York University and former executive at Providence Equity.

Can Twitter take Mask’s deal if he tries to end it?

Twitter could sue Mask for enforcing the deal, and a person close to the company described the deal as “bulletproof”. Alternatively, it could sue him for damages related to the failed contract. However, under the merger agreement, the amount of compensation that Musk could pay would be limited to 1 billion.

Another option, experts say, is for Twitter to first threaten to force Mask off and then settle for more than $ 1 billion in damages to avoid a messy lawsuit.

“Twitter can say, ‘OK, we want the deal done, and we’re suing for the deal.’ And you know, in your heart, Mr. Musk, the court is leaning towards us, so let’s forget the billion-dollar cap and settle for $ 2 billion, “explained Charles Whitehead, a colonel law professor and former corporate attorney.

Can the two sides reach an agreement?

Twitter’s board may decide to take a lower price from Mask to avoid the risk of trying to enforce existing agreements – and avoid the risk of having an independent public company at a challenging time for technology companies.

In 2021, Tiffany & Co sued LVMH for trying to force the French luxury company to close a deal that occurred just before the epidemic. The parties eventually reached an agreement to reduce the price slightly, which Tiffany shareholders later approved.

Concerned neo-hippies and their global warming, i’ll tell ya.

Colonel Whitehead, a law professor, added: “Mr Musk may be a little more concerned about who he can deal with in the future.” “If he leaves the deal, it could be difficult for him to make a deal for Tesla or for himself in the future. There’s a lot going on here. “

Video: Elon Musk talks to FT about Twitter, Tesla and Trump

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