Musk’s Deal to Buy Twitter Now Relies Only on Cash

The countdown is now on for Elon Musk and Twitter to close their $44 billion takeover deal by October 28 or be forced to re-prepare for a trial after a judge agreed on Thursday to pause proceedings. cool.

What everyone is waiting for now: Musk really needs to have the money to deliver.

Even the richest man in the world needs a little help for a purchase of this size. In April, Musk announced that he had lined up $46.5 billion in funding for the deal, including two debt commitment letters from Morgan Stanley and other unnamed financial institutions (one for $13 billion and one for $12, 5 billion, the latter of which was later reduced to US$ 6.25 billion). billion).

Musk himself also committed approximately $21 billion in equity to fund the deal and later raised an additional $7 billion in equity from investors such as Oracle founder Larry Ellison and cryptocurrency firm Binance.

Much of the point of contention between Musk and Twitter now appears to be over the uncertainty surrounding the status of these funding deals.

Musk’s team had said in a document on Thursday that there was no need to proceed with the call because he had committed to closing the deal on the originally agreed terms and the banks that had committed debt financing to help him. payable were “working cooperatively to finance the closure.”

Twitter — skeptical after Musk spent months trying to get out of the deal and also wanting to keep the pressure of a trial hanging over him — opposed pausing the process.

He raised concerns in a document pointing out that an unnamed representative of one of the banks had testified on Thursday morning that Musk had not yet sent a loan notice and “has not communicated to them that he intends to close the transaction at any time. ” Twitter also said Musk is expected to close the deal next week.

Many legal experts think Musk is actually planning to close the deal this time around, as certain as anyone has sounded since he first said the deal was “on hold” in May and decided to terminate the deal in July.

Many who follow the case think Musk realized that he would likely lose in the trial and be forced to buy Twitter anyway — spending more money and further damaging the company he would have to take over in the process.

“I think Musk intends to close the deal, and I think his reasons for not closing it at this point are probably a little straightforward,” said Ann Lipton, an associate professor of business law at Tulane Law School. The likely reasons, she said, have to do with how long it takes Musk to finish putting together all the previously announced financing deals to close the deal.

Musk is likely trying to help Morgan Stanley market the debt to other investors before telling them to give him the money to close the deal, according to Lipton.

While Musk is not obligated to do so, it would be a favor to a bank he has had a decade-long relationship with, as the economic environment is tougher now than when the deals were made.

Some have speculated whether Morgan Stanley and the other banks that provide debt financing might try to walk away from the deal now because Twitter is arguably even less valuable now than it was when the deal closed, after Musk spent months making allegations about its failures. and following broader social media and digital advertising market declines.

But the bank could face legal ramifications if it tries to back out of its commitment now.

“The only way out of this is to claim a material adverse effect and that Twitter has changed so much since they agreed to the deal that they no longer want to fund the deal,” said George Geis, a professor of strategy at the University. UCLA Anderson School of Management.

Even if the banks tried to pull back, Musk might not automatically be off the hook. Under the merger deal, Musk could, in theory, back out of the deal with a $1 billion payment to Twitter if his debt financing failed.

However, if the Chancellor of the Court of Chancery of Delaware, Kathaleen St. Jude McCormick, discovered that Musk was to blame for the failed financing after months of belittling the company, he could face a court order to sue Morgan Stanley for providing the funds or closing the deal without him.

In addition to debt financing, Musk may also need a little more money to fund his equity portion of the deal, which may require him to sell more Tesla stock, Lipton said, and he will have to wait a few days to be able to do so. that.

Tesla is due to report quarterly earnings on October 19, and executives are typically required not to sell stock in the days before the earnings report. (Presumably, Musk also has a large stake in SpaceX, but since the company is not publicly traded, it’s unclear what it would take to liquidate it in the short term.)

Another cause for some delay: Musk may also be trying to make sure his equity partners are still on board, despite all the buzz he’s created for Twitter in recent months.

Geis said these investors may be asking, “How should I balance the risk of [participar] of this deal versus the risk of losing my relationship with Musk [se eu não fizer]?”