Update, Oct. 6, 2022, at 6:01 p.m.: If you were expecting shenanigans to get in the way of this deal closing, there may have just been some shenanigans. Amid reports that talks between representatives for Twitter and Musk were hitting snags over some of the deal’s financing—as we told you below might happen—Musk asked for a stay in the trial that was set to begin later this month, Twitter pushed back, and the judge in the case took the former’s side, postponing the trial to Oct. 28 to give everyone some more time to hammer things out. The basic problem is Twitter doesn’t trust Musk to actually go through with the agreement, and Musk seems to have maybe, possibly left an opening for the financing to collapse and scuttle the purchase of a company that for many months he has made clear he does not want to own. Shenanigans! Maybe.
Original post: The short story of Elon Musk and Twitter is that he signed a deal to take the company private for $44 billion, at a rate of $54.20 per share. He then decided he didn’t want to do that, and he spent many months scorching the earth in an effort to pay a lower price or, it later became clear, none at all. Twitter sued Musk in the Delaware Court of Chancery, and until a few days ago, it seemed likely they’d face off there on Oct. 17. But then Musk reversed course again and said that, actually, he’d be fine to close the deal on the terms he agreed back in April. That move seemed likely to just about wrap things up, but it was a curious reversal and raised questions about what Musk was thinking. The likeliest answer is that Musk’s lawyers impressed on him that their case wasn’t going well—experts already had a lot of doubts—and he was tired of his text messages showing up in discovery. Maybe he was even tired of paying millions of dollars each month in legal fees, though everything in his life is relative.
There were other possibilities, too. One was that Musk thought he’d be able to line up more outside financing for the deal, reducing the cost to himself. Maybe that made giving up more palatable. Maybe he’d just had a change of heart, or some outside business consideration made him want to own Twitter after all. He tweeted, “Buying Twitter an accelerant to creating X, the everything app,” and nobody has to pretend to know what that means or that it’s going to happen. But someone could see the idea. There are lots of theoretical ways in which owning one of the world’s biggest social-messaging platforms could be good for someone’s other businesses. (There are also ways it could be bad, like if Twitter becomes a geopolitical cudgel for China to use against the guy who runs Tesla.) However, another real possibility is that the richest man in the world, who loves playing games, is still playing games. His actions in this case scream out for suspicion, and Twitter has obliged. Nothing will really be done until the $44 billion changes hands. And it might. Twitter and Musk could settle their dispute, and close the transaction, any time now. It’s the likeliest outcome. Still, every moment that it doesn’t happen is a moment to consider the ways this resolution could still go awry.
A few things point toward uncertainty. All of them revolve at least a little bit around Musk being a professional contrarian with limitless resources who tends to believe, with good reason, that he can bend the world and various legal proceedings to his will. But there are more specific reasons to entertain the possibility of a bumpy landing before the saga between Musk and Twitter reaches a merciful end. Twitter’s stock is down about 2.3 percent on Thursday as this article goes to the digital press, suggesting that Wall Street, while more confident than it was this summer, still isn’t entirely sold that the deal will close.
Why not? First and most straightforward: The case still exists. The letter Musk’s lawyer filed with the Delaware court on Monday made clear that Musk’s offer was contingent on Twitter’s lawsuit going away. The letter came “without admission of liability and without waiver of or prejudice to any of their rights, including their right to assert the defenses and counterclaims pending in the Action, including in the event the Action is not stayed, Twitter fails or refuses to comply with its obligations under the April 25, 2022 Merger Agreement or if the transaction contemplated thereby otherwise fails to close.” Lawyers are going to write in legalese when they file legal letters. It is not weird that an ostensible settlement offer (if one can call it a “settlement” to give the other side everything it wants) would include text making clear the conditions. But context is useful. Twitter and Musk didn’t announce in a joint press release that they had come to terms. Twitter really didn’t say anything, only that they’d received the letter and intended to close.
There has been no indication from Twitter or the court that the case is going away yet. “The parties have not filed a stipulation to stay this action, nor has any party moved for a stay,” the judge set to hear the matter wrote on Wednesday. “I, therefore, continue to press on toward our trial set to begin on October 17, 2022.” Twitter is understandably skeptical and has reportedly explored various ways of making really sure that Musk follows through on closing, including having the court supervise the transaction. The company realizes that Musk is Lucy holding a football. Twitter does not want to continue to be Charlie Brown.
In the interest of not overstating the danger of the deal not closing, the sides look to be working toward that outcome. Musk was supposed to sit for a deposition on Thursday. That didn’t happen, at the agreement of both sides, and that makes sense if one believes that avoiding a deposition was a motivating factor for Musk to re-offer the $54.20 deal. It is just that guns are still drawn. The sides appear to still be communicating at least in part via strategic leaks to news organizations. Nobody has struck anything resembling a conciliatory tone in public. Twitter has no reason to trust its counterparty.
An elephant in the room is also still present: Musk’s financing. From the start of his mostly silly back-away effort that in public focused on bots, Musk’s financial backing seemed to experts like the least absurd way that he might actually be able to get out of the deal. His merger agreement with Twitter called for Musk to secure about $13 billion in loans from banks led by Morgan Stanley. If that financing fell through, Musk had a theoretical out from the deal in which he’d need to pay a $1 billion breakup fee but not buy the entire company. But that was theoretical, and it did not necessarily account for a situation in which Musk took steps to sabotage his own financing. That is why, one corporate law expert recently explained to me, Twitter sent subpoenaes flying at the institutions that agreed to lend to Musk.
So, what about all of that financing? The banks might have some good reasons to not want to provide it. Credit markets have moved against transactions like this one over the course of the year, and the banks will now have to give investors in the debt much better yields than it appeared they would in the spring. Musk is a valuable client, and at least until Monday, he didn’t want to buy Twitter, so a savvy relationship move for the banks would have been to find a way to help him out. Musk has also spent months trashing Twitter in public, and there is a case to be made that in doing that, he has weakened the company and made it a riskier loan recipient. It’s a tough contract, but would that be the sort of “material adverse effect” that the banks could use to get out of their obligations? Would they want that at this point? None of this should matter if Musk truly intends to close the same deal he signed nearly six months ago, but what if he doesn’t? What if there’s a financing landmine somewhere? These all seem like fair questions. Experts in the subject matter have wondered about them for months.
Musk also lined up something like $7 billion in equity financing from some co-investors, including Silicon Valley luminaries like Larry Ellison and Andreessen Horowitz. It’s not clear how they feel about a deal for a company that the lead investor spent months denigrating in public. Many of these people seem primarily motivated by being in a cool club with Musk, but it’s still a lot of money, and none of these people, individually, have as much as Musk. A couple of big investors are now out. Is Musk finding other investors? Is he reaching further into his own pocket after months of fighting tooth-and-nail to avoid closing the deal? These also seem like interesting questions about what Musk is doing.
They might all be questions with satisfactory answers for both parties. The deal could close shortly, and Musk could take over Twitter this year and either turn it into the playground for the far right that many of his detractors fear, or barely change the platform at all. You might even buy the argument that he could make it better, as a social network and a business. The situation looks more stable than it did a week ago, when it was headed for trial not just technically, but directionally. I have made a note in my head of when I can cancel my Wilmington hotel room for no charge, but I have not gone ahead and done it just yet.