Twitter shareholders flex

Everybody has strong incentives to avoid all courtroom battles, always.

Well, not everybody.

There may be one or two attorneys who relish the battle. A co-worker of mine cannot keep her eyes off the Depp-Heard trial and those lawyers (his, at least) seem to absolutely love their jobs!

Pete

I’m sure Musk would like to pay a lower price, but Musk made at offer at $54.20. The board accepted his offer. There is a signed contract, in other words.

Now he seems to be saying he doesn’t like his original terms. I am not an attorney and have no experience in this area, but…

Yeah, like I said, we’re all just guessing. If this were simple, the market would price TWTR at around $54.20 rather than the ~$40 it closed at today. For whatever reason, Wall St. thinks this is unlikely to happen at the original offered terms.

Again, not an attorney, but Musk’s theory that the deal is off because his backers want a lower price than he already agreed to seems an awful lot weaker that hidden financial troubles.

That’s not Musk’s theory, that’s yours. We don’t know what Musk is thinking. All he’s really said (by way of tweeting) is that he doesn’t believe the 5% bots number and the deal is on hold until that gets sorted. He’s also made various modifications to his SEC filings regarding the financing of the deal. Originally, probably for simplicity, he indicated he would pledge lots of his Tesla shares as collateral for a large loan. Now he’s saying he’ll provide equity directly (probably by involving other investors).

There is not currently any evidence that the deal is on hold, and the original deadline for completion in the fall still stands. But the grumpy sounds from Musk are a clue that we are no longer looking at a simple deal between a willing buyer and a willing seller at an agreed price.

And now the shareholder lawsuits are starting.

We’ll need lots more popcorn.

-IGU-

But those folks are unlikely to be willing to set aside their billions for years…

Why would they need to? The financing is fluid. Today’s billionaire buddies can be subbed in for by tomorrow’s. Or Musk can come up with the money by himself if he wants to, especially given a timespan of years. It’s not as though he needs the money for anything – it’s not even money, it’s Tesla stock. And he keeps getting more of it as his options vest.

My point is that having the sale devolve into years of protracted litigation probably isn’t something Musk wants, either. He obviously wants to buy TWTR, not litigate over it - and the financial arrangements he’s lined up for equity partnerships are likely time limited. So both he and TWTR have strong incentives to avoid a courtroom battle over the current deal.

Yup. Which means that Musk holds the best cards. He can likely be forced to buy Twitter at the original price, but the cost is years of litigation, which Twitter shareholders won’t like at all. So it’s not effectively enforceable. Thus… negotiation and compromises.

Which requires more popcorn.

-IGU-
(again, mostly guesswork since we know almost nothing)

1 Like

Yes. In today’s world if they fixate on an individual - financial loss – even war - is no object.

And more Elon - lately - lost his protection.

Now they are out for him

Yup. Which means that Musk holds the best cards

If “the best cards” means buying something at more than double, triple or more than it’s worth, then yeah. As our friend syke6 pointed out, the PE of Twitter stands at 162. This for a social network which has never been able to monetize the platform to any significant degree, and at the beginning of a tech rout which threatens to decimate the share price of these sorts of “someday important” businesses. Facebook, which has shown gigantic revenues and profits (more than twice as much as ABC, NBC, CBS, and Fox combined ) trades at a PE of 15.

If Twitter caves on price, there will surely be lawsuits from current Twitter shareholders, who love the idea of their locked-in profit compared with what the market is offering.

So unless Elon just says “OK let’s do it” and writes the check, it’s hard to see how this doesn’t end up in lawsuits either way.

Elon Musk is dropping plans to partially fund his purchase of Twitter Inc. with a margin loan tied to his Tesla Inc. stake and increasing the size of the deal’s equity component to $33.5 billion. Musk will provide an additional $6.25 billion in equity financing for the $44 billion buyout, according to a regulatory filing Wednesday. That’s enough to eliminate the margin loan of the same size, which had already been reduced earlier this month.

The new structure could reduce the risk of the deal for both Musk and his lenders, particularly given the recent slide in Tesla’s stock price. The electric carmaker has sunk about 40% since Musk first announced his stake in Twitter in early April. An extended slump raised the prospect that he wouldn’t have enough unpledged shares to cover the margin loan.
https://www.bloomberg.com/news/articles/2022-05-25/musk-boos…

Musk is still looking for more “equity” from other investors who, except for a couple of early yesses, seem reluctant to jump in.

3 Likes

So unless Elon just says “OK let’s do it” and writes the check, it’s hard to see how this doesn’t end up in lawsuits either way.

Given that Musk can get completely and cleanly out of the deal for a mere $1B, I would think that, instead of law suits, was the default end if the deal falls apart.

1 Like

Given that Musk can get completely and cleanly out of the deal for a mere $1B, I would think that, instead of law suits, was the default end if the deal falls apart.

It’s not clear that he can get out “completely and cleanly”; typically the out clauses are for things like force majeur, acts of god, regulatory intervention, etc.

**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 buyer can also walk if there’s fraud, assuming the discovery of incorrect information has a so-called “material adverse effect.” 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.**
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&…

It’s debatable whether Musk’s “5% bots” (after the fact) would be considered fraud; he had the chance to do his due diligence before the deal was offered and signed, and didn’t. You don’t typically get to add your own conditions after the signature hits the paper.

1 Like

If “the best cards” means buying something at more than double, triple or more than it’s worth, then yeah.

I mean that Musk holds the strongest negotiating position. He doesn’t need to care about lawsuits in this situation because they take forever and it’s the other guys who are impatient. You also have to remember that the market is fickle. Maybe TWTR goes back up and it starts looking like he’s getting a bargain. Then all he has to do is say yes.

Anyway, I’ll stick with the “we know almost nothing” position.

An extended slump raised the prospect that he wouldn’t have enough unpledged shares to cover the margin loan.

This is nonsense. It “raised the prospect” only in the sense that some idiots (e.g. Bloomberg) mentioned that as a possibility without doing the math or otherwise supporting it with anything. Yeah, sure, if TSLA goes to zero then Musk won’t be as rich any more and he won’t be able to buy Twitter. So what?

Musk is still looking for more “equity” from other investors who, except for a couple of early yesses, seem reluctant to jump in.

It’s a theory. Do you have any evidence (e.g. an SEC filing)? Or are you continuing to present “stuff you read somewhere” as fact?

We know almost nothing, so this is just entertainment.

And, on that score, here was the Elon Musk tweet I enjoyed the most today:


Alex Thompson@24_7TeslaNews:
@elonmusk there is a bad bug with dashcam being unavailable - is there a fix in the works?


Elon Musk@elonmusk:
Problem arose from optimizing application performance. Use of Linux page cache caused increasing memory fragmentation, eventually preventing mounting of dashcam. Patch to filesystem driver fixes this. Update coming soon.


-IGU-
(software geek)
(over-the-air updates are the greatest!)

1 Like

I mean that Musk holds the strongest negotiating position. He doesn’t need to care about lawsuits in this situation because they take forever and it’s the other guys who are impatient. You also have to remember that the market is fickle. Maybe TWTR goes back up and it starts looking like he’s getting a bargain. Then all he has to do is say yes.

Musk has reason to be impatient, too - at least based on the information we have available to us. Firstly, and obviously, he wants Twitter (or he wouldn’t have gone to the trouble of trying to acquire it) - and the way he went about securing this transaction, he wants to get it quickly. Lawsuits frustrate that time frame. But perhaps more significantly, he’s lined up enough equity participation arrangements that he doesn’t need to margin any of his TSLA shares any more. Those arrangements are unlikely to have very long shelf lives (even billionaires don’t like having billions of dollars committed to, but not deployed in, investments) - which creates some incentive on Musk’s end to close on time.

On another note, from public reporting on the purchase and sale agreement, Musk does not have a clean walk-away for a billion dollars. There is a break-up clause in the contract, but there’s also a specific performance clause - which gives either party the right to force the other party to close. As with all contractual terms, Musk and TWTR could negotiate to modify that provision if they decided to mutually end the deal - but right now, that’s one of TWTR’s really strong “cards” that they can play against Musk.

Albaby

1 Like