It was becoming obvious that to buy Twitter, TSLA value would have to decline severely. IIRC, Musk only got around to selling $8 Billion pretax before quitting.
Musk thought he could afford Twitter. He sells some TSLA and the market collapses, and he suddenly decides against it.
Everything else is smoke and mirrors. Musk doesn't have the cash for the deal anymore (maybe he never had the cash for the deal). I guess Musk is looking at the $1 Billion ejection clause now and trying to weasel around it.
But at this rate, it looks like Musk owes Twitter $1 billion cash for this broke deal.
The merger contract provides the option to pay $1b to walk away under only limited circumstances: either the acquisition is blocked by a government, or Musk fails to get financing for the deal. The latter can't really be easily faked: if he said 'sorry, I thought I had the money, but I checked my couch cushions and it turns out I don't,' and paid the $1b to walk away, Twitter would sue and this assertion that his financing broke down would be tested by the courts.
In fact, out of those limited allowances to pay the $1b and walk away, Musk is bound by the contract to 'specific performance'. That is, he's bound to actually do it. Pay the $54.20.
A good M&A analysis of the situation is below.
https://yetanothervalueblog.substack.com/p/quick-twtr-though...
But digging deeper, the "people in the know" are now pointing out that this $1 Billion escape clause is actually very restrictive and unlikely to be invoked. Musk might be forced into buying Twitter at the previously negotiated $54.20 price.
But there's also the question: will Twitter's board really go to court to force Musk to buy it at $54.20? There's also the question of politics here. Even if Twitter's board is in the legal-right to do so, forcing Musk to become the new owner is bad politics.
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There's also the possibility of the Twitter Board's incompetence. Maybe they don't realize the advantageous position they're in and give up before testing Musk in court?
Yeah. Wealthy individuals advised by the best experts can't figure out what is good for them. Only if they would have someone in their orbit who knows how to read hacker news comments. </sarcasm>
He ain't as smart as you think he is.
My comment didn’t say anything about Elon. Please read it again.
If you mean he has poor financial judgement, that's something else - but there are billions of reasons why you might be mistaken.
Saying that on HN is just cruel: you know full well you have exactly the niche in your grip that simultaneously wants to exclaim.. the behavioural tendency of the child that he is, and bears the feeling 'no no, not here'...
Is there some kind of politics more important for corporate decision making than claiming the $20bn or so you're entitled to by contract?
Sure. It's the principle-agent problem. Twitter as a whole might make more money under scenario A, but the people who make that choice on Twitter's behalf might make more money under scenario B.
Of course, that's short term thinking if you're a C-level executive. Because scenario A gets you more money at your next job. But if you're thinking about retiring, it could work.
Corporate politics are politics like any other. They're very complicated.
https://www.engadget.com/musk-twitter-lawsuit-florida-pensio...
What we're really seeing here is: can a very rich person completely flout a contract, ignore legal obligations he signed, and abuse the legal system to the point that contracts are basically unenforceable against him? Sure, he has no case, and there is no real conventional legal way to wiggle out of this, but that's not really the question, is it?
As Matt Levine said in his column today, a merger arb told him that "if you're reading the contract, you've already lost."
In all likelihood, it seems the most probable outcome is a modest adjustment of purchase price to further "secure the deal" (whatever that means). But Musk is a bit crazy, so while that's the most likely outcome, it's hard to say it with much confidence.
Suddenly getting $1B without having to accept Musk as the new owner is beneficial to the share holders, and crucially tying up the company in a years long lawsuit to force Musk to acquire Twitter would be expensive, and until the contract is either completed or dissolved Twitter's fund raising options are greatly limited. Suing Musk for wanting out would not be a sound financial move and could even result in Twitter becoming insolvent. Their stock price could crash, their funds to continue the lawsuit exhausted, and most likely under those circumstances Musk would win and immediately turn around and buy Twitter for a far lower price.
With that said, the only real question here is what will Musk do under the circumstances? Funding the acquisition could cause his other businesses to suffer or even fail. SpaceX is particularly vulnerable, and it wouldn't take much to end the Borring Company if Musk's finances are in a dangerous position. If he just walks away he's out $1B, assuming they'll allow it. That can't be a super attractive option. Most likely he's going to exhaust every avenue in an attempt to raise the cash without putting his other businesses at risk. But there's a clock on that, and he could end up owing Twitter a shit load if he stalls for too long.
> but they were legally obligated to consider an accept a fair offer of acquisition because it would be in the best interests of the share holders.
Musk buying the company at 30% over market value seems like it would absolutely be in the best interest of the shareholders as well
> Suing Musk for wanting out would not be a sound financial move and could even result in Twitter becoming insolvent
Why not? This seems like an easy case and a huge win for shareholders. I feel like shareholders could sue Twitter into insolvency if they didn't pursue Musk for massive reparations if he flouted the contract
Matt Levine had a pretty different take, pointing out that if Elon Musk suddenly appears to be unwilling to buy Twitter, his financing might see that and - suddenly, but perfectly legitimately - evaporate, which would be a valid reason for Musk to walk away.
It really is true that lending someone a lot of money to make an investment they aren't interested in is a much worse financial move than lending the same money to the same person to make an investment they are interested in.
That was awhile ago. Since then, the funding agreements have been made public, and Matt's most recent take is that the funding basically can't disappear unless Musk can kill the deal via another route.
Look at Section 6.3
This has been repeated at nauseaum .
Just because you don't know their names and aren't shitposting on social media they are not incompetent.
They managed to screw Musk over, they basically looked at macroeconomics, regrouped after the initial no and sold Twitter to Musk at the very top of a 13 year old bubble in the making.
If you look at Musk carrer each and every time he sold onto bigger fools. Compaq, Ebay and of course all the equity raises of his overvalued businesses.
Twitter board managed to screw him over and demonstrate that only idiots don't change their minds, all in one swoop.
They have the upper hand now.
If everything goes as it should this would be like Trump election loss. Meaning a defeat that makes it so that you don't hear from a guy for a long time. A severe wound and an existential threat to the ego.
We can only hope.
Or even sub 3000 if inflation becomes deeply entrenched in the economy.
I don't think people are aware that the Twitter Board knew they were calling his bluff and are going to make him pay one way or another.
Oh, the agreement is absolutely in Twitter's favor if Musk pulls out of the deal.
But that doesn't mean *suing Musk* to complete the deal is actually their best move. As usual, the best move is probably some kind of plea-agreement (or starting to sue to get into the position of a plea-bargain), where the details are figured out.
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There's really no "political benefit" to forcing Elon Musk to become the new owner of Twitter. There's a lot of room for creativity here. Maybe Twitter manages to extract a $2 billion concession or $5 billion concession from Musk (rather than the limited $1 Billion in the deal, since that only applies to very restrictive terms)
Or maybe Twitter just bans Elon Musk from their platform for wanton trolling and collects the $1 Billion. Who knows?
Just because Twitter's Board is legally allowed to do X, doesn't mean that they will do X. They will use X to threaten Musk into doing Y (and Y is what they really want). I'm not sitting in Twitter's Board of Directors right now, I don't know what their "Plan Y" is. But I have reason to believe that X (ie: forcing Musk to buy Twitter at $54.20) isn't in their best interest.
Shame on Musk for writing $54.20 into the contract then.
Just because the value of something changed after you wrote the contract doesn't mean that you can break the contract unilaterally. Musk could have gotten around this with an all-stock deal (ex: I'll give the Twitter board 100,000 shares of TSLA or whatever), or other ways to write the contract without setting a particular dollar amount.
But Musk wrote $54.20 and signed it.
And the contract even says the Twitter Board can force Elon Musk to buy Twitter and finish the deal at $54.20. So they made it crystal clear to Musk (and his lawyers) that the $54.20 price points stays, no matter how Twitter's price changes over the next weeks.
I think offering a direct swap for his TSLA shares at 20:1 would have been a smart move. It would have cost him like 5% of TSLA, which is a lot but still would have left him with the same % that Bezos has of AMZN
https://www.cnbc.com/2021/12/30/tesla-recalls-475000-model-3...
Musk can claim that he relied on these numbers when making the offer. "Material misrepresentation" is the term he'd use and it just might work. There's an implied good faith in every contract, so irrespective of how "strict" the terms are, Twitter may have difficulty enforcing the agreement in this scenario.
That is, Twitter would have had to literally disclose that these numbers were unreliable, and have Musk agree under those terms in order to not have a fight on their hands.
They wouldn't be suing him to make the courts force him to buy them.
They would be suing him for damages - loss to Twitter's reputation and stock market value as a result of Musk's shenanigans.
Which would be....very tough to prove, but I wouldn't say they DON'T have a case.
They'd probably have a duty to try.
This is very common in large acquisitions and mergers. Remember, Must didn't have to include the $1B walk-away fee. But if he didn't, then the board may have been much less likely to accept the offer.
The lawyers came up with the terms and contingencies. Once signed, you're expected to hold up your end of the deal. I'm sure the lawyers have experience with court-cases / whatnot and have the precise court-cases which led to this style of agreement... but that doesn't matter anymore.
Musk agreed to it, so it must be upheld in that manner.
The government issue and the money issue are basically the two scenarios in which Musk would be unable (not just unwilling) to complete the transaction. So that's where he has to pay the fee. Otherwise, he can't change his mind.
(I know "kill fee" isn't the right term, but that's what we'd call the equivalent in publishing!)
IIRC, Musk makes Twitter a 100% cash offer. Twitter accepts, but writes the deal such that if either side pulls out of the deal, then a $1 billion penalty will be applied.
Musk goes to the banks and secures a $20 billion-ish loan, putting TSLA as collateral.
Musk starts to sell TSLA for the other $20 billion of cash. Stock tanks as a result, only ~$8 billion sold on public filing documents.
Musk runs around looking for another $12 billion for the last week or so.
And now we have today where it looks like he is failing his side of the deal. If Musk lost the $20 billion-ish from the banks due to TSLA being too low, it makes sense for him to give up.
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All that is going on right now is Musk trying to blame Twitter for the failed deal, so that he avoids the $1 billion penalty written into the contract.
The value of ads drops during a recession, and things are looking more-and-more bearish this year.
It's completely nuts for 'one guy' to spend $40B on something, too much possibility for self delusion.
Musk should have had Private Equity lined up before the offer as part of a consortium. They would have called out his bullshit.
It's really, really telling that he did not.
Imagine Musk having to sit a table with 'mere bankers' telling him he doesn't know what he is talking about.
It's easy to be full of bluster when you're sitting on top of zillions in inflated valuation.
Had you posted under any other topic relating to Musk before today, you would have had replies here claiming "Musk is highly intelligent and helped create at least 3, multi-billion dollar companies, with 2 more in the pipeline (neuralink and boring). How dare you question his genius".
Since there aren't, I'm using this comment as a reminder against confirmation bias.
Those two thing can be true at the same time.
I follow many VC Twitter accounts and it seems to me, even the 'nice' ones are giant turds when it comes to any kind of social or communitarian understanding of the world.
But they understand startups very well.
It's common among successful people, I think, to be really great in their core competency, to have fairly astute understanding of other things and yet be completely glib at the same time, and lack the self awareness to recognize it, supported by the fact that 'nobody challenges them' on anything.
It's not sensible to make ANY assertions with the market as it is today.
TSLA has a problem with its stock. It's way overpriced for the size of the company. For Tesla, the company, to grow into its stock price, it has to make more cars than Toyota, GM, Ford, Volkswagen, and the rest of the top 12 car companies put together. Toyota alone makes 5x as many cars as Tesla.
Which means TSLA is a meme stock. And the bottom is falling out of meme stocks.
You’re right that Tesla is valued on future performance but this part is just factually wrong. They will need ultimately to make more profits than those companies combined, but the number of cars is not that important. Apple has a ~25% share of the phone market but makes most of the profit.
That climbs pretty linearly with car sales. There's only so much margin you can make with a vehicle in any market. Apple manages to have higher profit at lower sales because selling a phone for $1000 that cost $200 is possible since millions of people can afford $1000.
Selling a $100k car that cost $20k is a much bigger margin than maybe Toyota has, but there are very few people who can afford $100k cars. Eventually you need volume. Apple itself has huge volume, they are outsold by around 20-30% against Samsung, not by 5000%.
And they have vertically integrated, after automakers spent decades spinning out. Much more value capture.
And they have secured better rights to raw materials (lithium).
When Elon Musk's networth is almost entirely tied up in TSLA shares, when the price of those shares declines by 20%+, it changes plans. Banks are less likely to take Elon Musk's collateral (almost certainly TSLA shares), Musk himself loses a chunk of networth and loses an ability to raise dollars, etc. etc.
Most if not all of these people can't liquidate even close to their "net worth"
Larger sums are only really useful for making big-splash investments. Like this. As far as personal spending goes, it's no obstacle, so it doesn't matter that they can't easily turn their entire net worth into a literal billions-of-dollars balance in a checking account.
Twitter, you can't buy Twitter on a whim.
I feel like he's not obligated to do anything, but ignoring his commitment makes him a worse person, and there are probably amounts greater than zero which do not encounter the issue you describe
Are we sure Elon isn't just claiming that he forever wants more detail, like a sealioning troll, because in actuality he wants the money for himself more, and never actually intended to make the donations he committed to? Occam's razor would suggest that is actually the case.
I mean, if we was serious about it, after he received the plan, did he ask for more detail on any of the items he didn't understand?
It doesn’t say how they’ll spend the money aside from allocations here and there, and it wouldn’t solve world hunger.
it's actually just a plan, not a 'so-called "plan"', whatever that means
>It doesn’t say how they’ll spend the money aside from allocations
the way the money will be spent, is by allocating money to the items that it will be spent on, which are detailed in the plan.
that seems good enough to start for me, but where did Elon ask for more info than that? I asked this in the previous post, but very conspicuously got no answer.
surely he didn't just _forget_ about _billions of dollars he committed to donate to charity?_
There's little you can do as a billionaire that you couldn't do as a hundred-millionaire when it comes to simply buying things for liquid cash. You can buy all the houses, boats, private islands, etc. that you want.
The only meaningful difference in wealth at that scale is buying fundamentally scarce things: specific real estate and private islands, favors from politicians, private time with other powerful people. For all of those, you are competing with other wealthy people to win them, so it's relative wealth that matters.
It's probably ridiculous to most to think of hundred-millionaires being financially constrained, but I do think there's a material difference in the buying power of $100M and $1B without getting into unique goods.
I think that's broadly true, though some of the older ones might be able to. Bill Gates, for example, has diversified his wealth out of Microsoft (and he doesn't control the company these days, anyway). I don't think the market would punish Berk or AutoNation, for example, nearly as hard as they've punished Tesla for Elon cutting his ownership stake.
It would be interesting if there were some way to calculate something like the "cash net worth" of individuals. Work out what they could actually reasonably expect to get if they liquidated all their assets. Obviously it would be a pretty rough estimate, but you'd definitely see some reshuffling of the richest people lists.
Not all sales are equal. Here you have a guy who essentially arrived at the end of the road and brought Microsoft where only Standard Oil arrived before.
Both had extinguished all their natural competitiors and had to be essentially stopped by the US Federal Govt.
Stark contrast with the CEO of a luxury automaker who inflated a financial bubble to enrich himself who is now selling to buy a social media platform.
It could be that confidence in musk and his brand is having more of an impact on share price than supply and demand. He's behaving erratically and is clearly distracted from running tesla by this twitter fiasco. I'm not sure what weighs more on the minds of institutional investors.
Good drug dealers don't get high on their own supply.
Kind of stretching the analogy, but you hopefully get my point.
PDF: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001418091/e61e437...
I don't see mention of the number of Twitter users and investigation on fake accounts. I guess that falls under the misrepresentation of accounting section. It looks like a fairly standard acquisition/merger contract.
The mention of the 1 Billion penalty is however pretty easy to find.
Musk should be in for several billion, surely, but the rest of the money should have come fro Private Equity / Buyout partners.
I assumed that this was the case, not just him putting up Tesla stock as collateral.
I'm pretty sure "funding secured" in this case.
Everything is down this year - TSLA isn't down as much as Ford in 2022... I'm not sure twitter had tons to do with TSLA stock being down.
Under the original plan, Musk needs to sell approximately $20 billion more of TSLA stock before the original deal could be accomplished.
What do you think will happen to TSLA share price if Musk did that?
It's a hard job to find $40+ billion dollars. You gotta sell assets, and when you sell those assets, they fall in price significantly.
And, of course, the counterstrategy is to wait until next Wednesday, when the price of TSLA moves upward, then sell and catch the falling knife when other institutional buyers ease off the stock price.
To be clear, I hold no shares of TSLA because you can get hurt trying to catch falling knives.
Why wouldn't he put up more Tesla as collateral? How do you know he can't get more financing? How much BTC, Doge and eth does he have? No one knows how rich this man is, people need to stop acting like they do.
Because he didn't. If Elon Musk had easy access to Tesla-as-collateral, he would have put more of it up as collateral.
> How do you know he can't get more financing?
Because he's cutting himself out of the deal. That suggests he has run out of options to get money.
Besides, surprise +50 BPS from the Fed just made it incredibly more difficult to get financing from the banks, and -20% to TSLA's stock price in the past couple of weeks compounds upon this fact, and makes it more difficult to use TSLA-shares as collateral.
> How much BTC, Doge and eth does he have?
Whatever amount he has, it is worth about 25% less than two weeks ago.
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EDIT: I mean, maybe Musk has the money and is just trolling all of us? Which sounds on-brand for him frankly. I don't know why he'd want to do that, but he's not exactly a "stable" figure.
Just because he doesn't put up more, doesn't mean he doesn't have access to more. You shouldn't use more collateral than necessary.
That's not really how the break fee works. There's a specific performance clause that allows Twitter to force Musk to go through with the deal as long as he has the money (which, shockingly, seems to have come through). They'd only give up on that and take the break fee if the deal was truly over and they were prepared to say no to a lower offer.
Here's the actual quote from Twitter's IPO. 0% chance Musk is convincing a judge this statement is "materially off" given the amount of disclaimers attached.
Similar statements in more recent fillings have all come with similar disclaimers to the best of my knowledge.
That's maybe a 20% chance?
Quote from his newsletter:
> That contract does not allow Musk to walk away if it turns out that “spam/fake accounts” represent more than 5% of Twitter users. We discussed this last month, when Twitter admitted in a securities filing that it had (slightly) overestimated its daily active users for years. The merger agreement contains a provision that allows Musk to walk away if Twitter’s securities filings are wrong — and this 5% number is in its securities filings — but only if the inaccuracy would have a “Material Adverse Effect” on the company. (See Sections 4.6(a) and 7.2(b).) That is an incredibly high standard: Delaware courts have almost never found an MAE. An MAE has to be something that would “substantially threaten the overall earnings potential of the target in a durationally-significant manner,” the courts have said; there is a rule of thumb that an MAE requires a 40% decrease in long-term profitability. If it turned out that 6% or 20% or 50% of Twitter accounts are bots, that will be embarrassing and might even reduce Twitter’s future advertising revenue, but will it be an MAE?
There isn't a way for him to exit the deal – Twitter can compel him to go through with it based on the contract. The main question remains though: Will Twitter go through the arduous and potentially ruinous process of forcing him to honour his obligations? Is this a negotiating tactic on his behalf (Is he trying to get a better deal)? If he does want out, will Twitter compromise and take a settlement (they could ask for way more than oft-discussed $1B exit fee)?
This is Musk being Musk, and personally I hope if he does try to back out or renegotiate, he gets punished severely.
There doesn't need to be an MAE or MAC for a deal to fall through if a representation the target makes is false. In this specific case Musk can walk if any of the reps & warranties are false (or any of the covenants are breached).
It is not clear to me that the personal cost to Musk would be less than what he initially expected it to be, measured in units of Tesla stock, though I agree it could be less than if he completes the current deal.
As for the spammers thing, Musk waived an extensive due-diligence investigation, and now he is complaining about issues that should have been covered by that investigation.
Perhaps because the board and shareholders will be far more inclined to reject an offer from Musk after he feigned buying it one time and backed out?
He didn't feign anything. On the contrary, he's proved that he was dead serious about it.
All he'd be doing would be renegotiating the price, which is something that any reasonable person would do when the circumstances change so drastically (assuming, of course, that a renegotiation would be possible).
Don't think for a second that Twitter would walk away from Musks's offer if someone were to offer $60 a share.
1. Announce buyout (priced at a premium, of course) is "on hold"
2. Stock drops due to bad news
3. Re-negotiate for lower buyout after manipulating the stock to a lower price
He can only back out is Twitter's securities filings are so wrong that profit projections are more than 40% off (MAE standard) or he was unable to secure financing. Spambots being a bit higher than projected is not enough to break the contract, especially given that Musk waived due diligence and that the Twitter filings have always said that the bot number is an estimate. Elon Musk's lawyers are probably more than a bit panicked right now.
1. Accept the 1bn backout and accept that Musk will look like a fool.
2. Sell enough Tesla stock to finance the deal, while risking a total meltdown of the Tesla stock price.
The lawyers are most likely trying to devise a third option, but it's very hard to see how that can play out.
If everything is on fire, all day, every day, then nothing is on fire.
Now that's premium starting from a lower base, but...
Also, it does feel a little "manipulation"-y to tank the price on news of you yourself trashing your deal, then taking advantage of that to make the same deal but cheaper?
Of course any analysis is assuming Elon actually means it and didn't just tweet this as a joke or on a whim.
Elon Musk's past behavior has shown him to be extremely comfortable with this tactic.
I just assumed this is his plan here? He manipulates the market with his shenanigans and trash talking, lowers the price of Twitter by a massive amount, then buys it for a bargain.
This isn't a renegotiation, this is him paying points on his mortgage for a lower rate - but where the points paid go towards the previous owners either way.
A great way to spend a billion!
> As a result of these developments, we believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels. Consequently, we see a significant risk that the deal gets repriced lower.
The board and execs consented to a takeover by an ideological adversary...the company culture is smashed and will never return
If he walks, the stock craters and employees know the board is no longer invested in the future...if the deal goes through, employees will have to March to Elon's beat or be fired. Either way...bye Twitter
"Consented to takeover by an ideological adversary" -- why, because Trump is banned? Is Musk going to try to bluff Facebook with an offer too?
What if the deal fails? How will Musk ever live down the dishonor?
The deal at $54.20 was maybe OK for him a month ago (it was great for Twitter because nobody else was interested at that price). Since then, Twitter reported disappointing numbers for the past quarter, and the entire market took a nose dive, with tech hit especially hard.
TWTR stock price was in the mid-30s before Musk's offer. Without the offer, and with the disappointing numbers, and with the recent market development, one could reasonably assume that the stock would be below 30 today.
Musk should just pay the break fee of $1bn, and renegotiate for $42.69 or whatever meme number he fancies. Why pay $42bn total for something when you can get it for $30bn.