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Comment by mediaman | Hacker News Reader

The $1b is not a simple breakup fee. He can't just say, "I've changed my mind, here's $1b, the deal is off." It's not a $1b option to walk away.

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...

View on HN

Yeah, I didn't realize this since I guess I've only paid attention to the surface-level facts.

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?

> 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.

Is there some kind of politics more important for corporate decision making than claiming the $20bn or so you're entitled to by contract?

> Is there some kind of politics more important for corporate decision making than claiming the $20bn or so you're entitled to by contract?

Corporate politics are politics like any other. They're very complicated.

https://www.engadget.com/musk-twitter-lawsuit-florida-pensio...

> 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.

I really don’t understand this comment. You think the Twitter legal team are so dumb to not have negotiated an agreement in their own favour?

I don't mean to be snarky but we're talking about the same company that shut down Vine and let TikTok happen. Their decision making has been baffling.

You're making a category error. The legal team is not the product team.

And Tesla has recalled nearly half a million cars mfg between 2017-20[0]. That's a solid percentage of all the cars they've manufactured during that time. I shudder to ask what you think of its leadership.

https://www.cnbc.com/2021/12/30/tesla-recalls-475000-model-3...

What? How is Tesla's car quality relevant to this conversation? You're really stretching here.

> I really don’t understand this comment. You think the Twitter legal team are so dumb to not have negotiated an agreement in their own favour?

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.

How about the obvious fact that Twitter is not currently worth $54.20/share? It's probably worth half of that if it weren't for the offer, given this week's climate. Surely it's at least partly their responsibility to negotiate the best financial outcome for the shareholders.

> How about the obvious fact that Twitter is not currently worth $54.20/share?

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.

But 54.20 ends in 420, which means weed. Musk loves to memelord.

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

TSLA is way over valued at the moment. That would be a big risk compared to cash in hand.

To accept it, yes. But it avoids the macroeconomic questions and would have been a good idea for Musk to offer

If they did that they would get sued by their own investors.

Not if the board negotiates a lump sum settlement for breaking the contract instead. That's free money for Twitter shareholders.

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.

I mostly agree with this

That is indeed the big question. The court case would go on for a long time, and in the meantime they'd be in this weird limbo and the business would suffer.

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.

One particularly tricky nuance of contract law is that their must be someone with legal standing who wants the contract to be enforced. If Musk doesn't think he can put the funds together without damaging businesses he cares about more than owning Twitter, then he can pretty much just invoke the $B walk away if he wants to. The Twitter CEO and board were pretty clear they did not think Musk's acquisition was in the best interests of the Company, 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.

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.

>One particularly tricky nuance of contract law is that their must be someone with legal standing who wants the contract to be enforced

> 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

> There's also the possibility of the Twitter Board's incompetence

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.

The poster suggested the possibility that they're incompetent to create a counterfactual, not that they are.

Oddly however, the other counterfactual of Musk being incompetent did not come up. This is after all, a person that paid the SEC $40m and has to have a company lawyer review what he tweets about Tesla.

It would not have made sense to discuss Musk's competence in context because Musk doesn't have autonomy over how Twitter chooses to respond to this.

He has autonomy into buying the absolute top of the 13 year bubble. Locking the purchase price at t minus 4/6 months. In 4/6 months when the acquisition is completed the S&P could be at 3210 and he'd have paid 54.20/share.

Or even sub 3000 if inflation becomes deeply entrenched in the economy.

If it gives him a cover story to sell $TSLA shares when that company is valued more than the next ten automakers put together, he’s at least getting a bit diversification and is winning on that side while losing on the Twitter side.

This. I'm surprised it's not talked about more.

yeah TSLA has to be feeling like a big of a golden cage at this point. 20 more years of making cars? sounds exciting

Musk's competence has to do with "this" being a thing at all. He started it!

> 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.

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.

There is a best efforts covenant. They are in every merger agreement. Musk can't do this without being sued.

Look at Section 6.3

I mean, if that's true it just goes one step back. Then his action breaking the contract would be to express equivalence or hostility towards the transaction.

> 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.

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.

> 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>

You have a hilarious amount of confidence about the competency of America's oligarchs. Elon is a financial scammer, his money all comes from government subsidies.

He ain't as smart as you think he is.

I'm pretty sure the comment came from the other direction - that Twitter's board/CEO wasn't so inept they needed to be advised by HN.

Just like Boeing, Lockheed, GM, etc.

Those companies don't have people worshipping them like they're a collective of geniuses. Musk's companies certainly aren't any worse than those companies - but they're no better either, and he's no Messiah.

> he's no Messiah.

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'...

Have you seen him give the everyday astronaut guy the boca chic tour? Yeah, he's pretty damn smart.

If you mean he has poor financial judgement, that's something else - but there are billions of reasons why you might be mistaken.

> He ain't as smart as you think he is.

My comment didn’t say anything about Elon. Please read it again.

One thing to consider is that if he can show that something potentially material like the fake account percentage was incorrect, then that may offer him an out.

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.

Twitter would have to be run by people that don't want the $1B payout and for Elon to just fuck off. News flash, they current executives and even the founder do not want Musk to acquire Twitter. Everyone with the legal responsibility to sue Musk for taking that way out have no interest in doing so. The $1B walk away clause requires musk to pay because being in a position to be acquired negatively impacts their ability to raises funds. They're even under a hiring freeze, and the reason is probably due to a combination of uncertainty around the deal and partly because they can't due things like sell additional stock or bonds, and their ability to acquire new lines of credit are greatly reduced until the acquisition contract either completes or is dissolved.

Presumably a class action lawsuit of TSLA shareholders might force him to buy their shares at 54.20. Which, hilariously, might then get diluted by the poison pill.

> Everyone with the legal responsibility to sue Musk for taking that way out have no interest in doing so

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 incorrect. The contract says that they can indeed to legally force him to go through with the deal and price that he agreed to. If it turns out to be more than twice the current valuation of twitter, they should do this. But they probably won't

Keep in mind there's the very real possibility of twitter just negotiating for a $2 billion (random number between $1 billion and $44 billion) break up fee to use a different reason

Why would Musk have to pay if the government blocks the deal? It's not like it's an out - he's legally prohibited at that point.

Because he signed the agreement.

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.

ATT had to pay T-Mobile when their deal fell through due to the government. Look at this way Twitter just made a whole bunch of business decisions based somewhat/mostly on Musk's takeover. If he pulls out, Twitter will be hurt financially. Or suppose it was a hostile takeover by a competitor - they could fein a takeover - hurt their competitor - then walk away.

I don't think he did. Section 8.3 deals with the termination fee and it doesn't list 8.1(b)(i) as a reason it gets paid. 8.1(b)(i) is the government blocking.

Because if he didn't think the government would approve the deal, he shouldn't have made the offer in the first place. By making the offer he is creating a massive amount of distraction and uncertainty for the company-to-be-acquired, and if in the end the deal is voided because the government blocks it, then the company-to-be-acquired need to be compensated for all the wasted time and effort that went into a failed deal.

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.

mediaman’s comment (and the article they linked) says that the government blocking the deal is one of the limited circumstances in which Musk wouldn’t have to pay.

I may have been unclear. He wouldn't have to buy Twitter if the government prevented it, but he would be required to pay $1b. Outside of those circumstances, he is contractually forced to buy Twitter.

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.

No, I think you were clear, and I wasn't. :) I understood that it was more "he won't be on the hook to buy Twitter if the government prevented it but there's still a kill fee," but bungled describing it.

(I know "kill fee" isn't the right term, but that's what we'd call the equivalent in publishing!)

Because the contract says that

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