Is Elon Musk beating Wall Street at its own game?
A takeover is not unlike a game of chess. One side makes a move, and the other must react, and sometimes forfeit an advantage. In Elon Musk’s case, it appears that his tweet to put the Twitter deal “on hold” could be a masterstroke, and don’t be surprised if this week we see him try to renegotiate the deal’s price.
On early Friday morning, Musk tweeted out that the Twitter deal was on hold, attaching a Reuters story about how fewer than 5% of the company’s users were spam accounts. Musk shortly after said that he is still committed to closing the deal and seeing it through, but not before shares of the company had tanked in pre-market trading. You have to wonder how that one landed at the Securities and Exchange Commission, which has given Musk grief over allegedly misleading investors in the past. But then, as my colleague Shawn Tully writes, you also have to wonder whether this is part of some larger, well-orchestrated plan for Musk.
In Tully’s words:
Most likely, Musk’s May 13 moves are part of a chess game where the master’s maneuvering to either pay far less for Twitter than his original $46.5 billion offer, or walk away if its directors don’t cave.
Here’s the exact wording in the deal, referring to the $1 billion fee for Musk to walk away: “The Termination Fee shall constitute the sole and exclusive monetary remedy of the Parent [Musk] as a result of the failure of the transaction to be consummated.”
It’s entirely surprising, James Woolery, founding partner in law firm Woolery & Co (who has worked on deals including Clorox’s defense versus Carl Icahn, Dell’s campaign to go private, and Medco health’s merger with Express Scripts) told Tully. “The dynamic on this deal is beyond belief,” he said. “The Twitter board did the deal virtually overnight. It looks rushed, as if they were so happy to get the offer they didn’t demand the right protections.”
Woolery adds: “The Twitter board handed him incredible leverage that I’ve never seen in any other deal. Instead of being potentially liable for the entire $40 billion-plus purchase price, the board effectively gave him an $1 billion ‘option’ to buy Twitter. He should be facing liability of between $1 billion and over $40 billion.” Instead, marvels Woolery, the most Musk risks by exiting is a $1 billion breakup fee, while by threatening to depart, he could shave many billions from his offer––a deal the Twitter board would be hard-pressed to reject.”
Twitter is bleeding key employees: Two of its top executives, head of product Kayvon Beykpour and head of revenue product Bruce Falck are leaving the company, due to CEO Parag Agrawal allegedly wanting to “take the team in a different direction.” And other tech stocks aren’t performing well on the market—meaning that Musk appears to be in a strong position to try to re-price the purchase cost. He may be able to reprice the transaction in the low $40s, potentially getting a 25%, or $11 billion, discount from his $46.50 offer.
Or he might simply walk away and pay up $1 billion. “That’s a tiny fraction of his net worth, and perhaps not even that,” Tully writes.
See you tomorrow,
Jackson Fordyce curated the deals section of today’s newsletter.
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