Why Elon Musk Can’t Get Out of Buying Twitter Even if His Bankers Bail Out


Elon Musk agreed to buy Twitter in April for $44 billion A pitch To improve the company by adding new features, blocking spam bots, and being more transparent about its algorithms. He secured support from a consortium of banks, who agreed to borrow more than half of the total contract price to take over the company.

But now Musk wants out, accusing Twitter of not providing him with more information and saying he sees the company’s business prospects as dim. Twitter sued him to end the deal, saying his reasons for leaving were excuses to get out of financial commitments he no longer wanted to honor. Meanwhile, his financial backers are stuck.

Twitter clearly argues that its deal with Musk is to do everything it can to finish what he started. Similarly, the banks that agreed to lend Musk billions to help buy Twitter signed legal agreements preventing them from simply walking away if they changed their minds, according to legal experts.

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“They’ve signed commitment letters,” said Adam Badawi, a law professor at the University of California, Berkeley. “Banks have reputations to uphold. “If other companies renege, they won’t want to work with them,” he said.

Even if they find a reason to get out of the deal — for example, by arguing Musk’s face has made the deal significantly more risky for them — Musk could be forced by a judge to find another source of funding.

What role did debt play in Musk’s original deal to buy Twitter?

Musk is the world’s richest man, worth $218 billion Bloomberg Billionaire Index, but not even $44 billion in hard cash under his mattress. He signed two deals with banks including Morgan Stanley, Bank of America and Barclays for a total of $25.5 billion in loans. He pledged a significant amount of his own wealth in Tesla stock as collateral in case he couldn’t repay the loan. The rest of the deal is to be financed with cash, split between Musk and a consortium of hedge funds and sovereign wealth funds that have agreed to help him buy the company later and become co-owners if the deal goes through.

Spokesmen for Bank of America and Barclays declined to comment. A spokeswoman for Morgan Stanley did not respond to a request for comment. Musk did not immediately respond to a request for comment, nor did a Twitter spokesperson.

Before saying he wanted out of the deal, Musk raised the part he wanted Pay in cashA total of $33.5 billion.

Now that Musk says he’s closing the deal, the calculus of the banks that agreed to lend to him could change.

“Musk doesn’t want to own Twitter, banks don’t want to finance it. We’re in this weird ‘Alice in Wonderland’ situation where we’re trying to force this guy to buy a company he doesn’t want to buy,” said M. Todd Henderson said. “You want to fund a guy to own a company he doesn’t want to own?”

Why haven’t the banks tried bailing out already?

Banks are scrambling to finance the deal should it fall through, and many don’t believe Twitter will succeed in getting the courts to force Musk’s hand. A judge in the Delaware Chancery Court would force a settlement, making Musk pay a hefty price for putting Twitter through so much trouble, but ultimately let him go. Carl Tobias is a law professor at the University of Richmond.

In that case, the banks would receive a small fee from Musk for doing the work, and they would no longer owe him anything.

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There’s another reason they’re sticking with Musk now — they want to be in his good books, and arguing he’s acting in bad faith could hurt that. Musk is still the world’s richest person, and Tobias said he will need debt financing in the future regardless of how the Twitter situation ends. “If you’re a bank you want to keep his business because I think it’s very profitable,” he said.

If the banks find a way out, will it drive out Musk?

No, Musk’s contract with Twitter includes a clause that requires him to honor the deal even if his debt financing is not available.

“His cancellation of the contract may be a violation of some sort, but Twitter is going to say it’s your fault, not ours,” said Anthony Casey, a law expert at the University of Chicago.

If so, Henderson says Musk would have to pay the cash portion of the deal to Twitter’s investors, and then Twitter (which he now owns) would take on the debt itself to finish paying the old shareholders.

Musk could go to court to force the banks to honor their deal and loan him the money. If he doesn’t want to do that, the court can appoint a special representative to act in his stead and sue the banks, Henderson said.

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Has this happened before?

If Musk’s debt arrangements become a factor in a potential settlement or trial, it wouldn’t be the first time financing has become a factor in a court case related to a merger deal. Last year, Delaware Chancery Court Judge Kathleen McCormick, who experts expect will handle the Twitter case, oversaw a court case involving a private equity firm that tried to back out of a deal to buy a cake-decorating supply company. Decoback By blaming the economic downturn on the pandemic. McCormick said the private equity firm acquiring DecoPac should go ahead, even though they don’t have the original funding to close the deal.

“When they see bad faith behavior, they don’t like it,” Badawi, the Berkeley law professor, said of the Delaware court and its judges. “They tend to punish it.”

Why does Twitter want the deal to go through at this point?

The main role of the Twitter board is to serve its stakeholders – banks, pension funds, hedge funds and individuals who own its shares. Now, Twitter shares are trading at about $36, well below the $54 a share Musk agreed to pay those shareholders to buy the company. If Twitter’s board were to allow Musk to leave, it would leave a significant amount of money on the table and potentially expose them to lawsuits from shareholders.

The entire episode has caused significant damage to the company’s reputation and workplace morale, with Musk’s attacks fueling ongoing concerns about its business. If Musk were to leave altogether, the company’s stock price would drop further.

Many Twitter users and employees don’t want the company to be sold to Musk, who owns other companies Met with lawsuits and complaints Over treating employees.

Eve Williams, one of the founders of Twitter. said If he were still on the team, “he would ask if we could let this whole ugly episode blow.”

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