Musk’s Twitter endgame may be a lower purchase price

Elon Musk has agreed to pay Twitter $44 billion, which is way more than it’s worth. His actions indicate that he does not want to pay that much – he still wants the company, but not at this price. So the big question in the markets is: Will he end up buying the company, and if so, how much will he ultimately pay?

why does it matter: At stake is the future of one of the world’s most important social networks.

• And on a purely financial level, Twitter contributors have a direct interest in how much they will eventually receive. Moreover, Tesla shareholders have an indirect but similarly significant financial interest in what is happening.

The Big Picture: Musk is contractually obligated to buy Twitter at the agreed-upon price, and he can certainly do so.

• Focus a lot of attention on The $1 billion termination fee in the short-form merger agreement. Fewer people have looked at the section on “determined performance” in the long-running merger plan that basically states: “If you try to undo this, we can take you to court in Delaware, and the court will force you to buy the company at the agreed price.” .

Between the lines: This language is especially relevant in such cases, where the buyer has the ability to pay in full. (Even if he has to sell a large chunk of Tesla stock to get the cash he needs.)

• The main prefix is IBP Inc. against Tyson Foods Inc, With Don Tyson of Tyson Foods playing Elon Musk. He tried to back out of an agreed-upon acquisition of the IBP, but in 2001 a Delaware court forced Chancery to buy the company anyway.

What’s Next: Musk and Twitter, in particular, will not want a protracted court battle. Twitter may agree to a small discount to the agreed price, just to get the deal done.

• After LVMH tried to back off its purchase of Tiffany at the start of the pandemic, for example, that deal ended up with a 2.5% discount off the originally agreed price. A similar discount in this case would bring Twitter’s price down to $52.80 per share, from $54.20.
• Alternatively, Musk could pay Twitter a large fee to be relieved of its obligation to buy the company. When Apollo backed out of its purchase of Huntsman in 2008, for example, it paid a $1 billion settlement — much larger than the $325 million breakup fee in the merger agreement.

Bottom line: “The separation fee is not an option to give up,” says Mitu Gulati, professor of law at the University of Virginia. “Specific performance promises are very doable. Especially in Delaware.”