The agreement with Twitter does not leave Ilona Maska an easy way out
Since the financial crisis, corporate lawyers have sought to build a final iron merger contract that prevents buyers from backing down.
The “punching” current deal is now facing one of the biggest challenges, as Elon Musk, Tesla’s boss and the world’s richest man, openly considers abandoning his $ 44 billion deal for Twitter.
Musk said on Twitter this week that “the deal cannot move forward”Until the social networking platform provides details about fake accounts, a query that Twitter seems unlikely to satisfy. Meanwhile, the Twitter board has stated its commitment to “complete the deal at an agreed price and terms as soon as possible.”
Simply abandoning the deal is not an option. Musk and Twitter have signed a merger agreement, which states that “the parties … will make every reasonable effort to complete and make effective the transactions provided for in this agreement.”
Due to the fall in technology stocks – the decline in the value of Tesla shares, which form the basis of the state of the Mask and collateral for a margin loan to buy Twitter – all eyes are on the billionaire’s next step.
Can Musk leave for $ 1 billion?
The deal includes a $ 1 billion “reversal fee” that Musk would have owed in the event of a withdrawal from the merger agreement. However, if all other conditions of the closure are met and the only thing left is for Musk to show up at the close with his $ 27.25 billion, Twitter may seek to force Musk to close the deal. This legal concept, known as “specific performance,” has become a common feature in leverage redemptions after the financial crisis.
In 2007 and 2008, leverage buyouts typically included a termination fee, which often allowed the company supporting the acquisition to pay a modest 2 to 3 percent of the transaction value to exit. The sellers believed at the time that private investment groups would follow and close their deals to preserve their reputation. But some have suspended these agreements, leading to several lawsuits involving well-known companies such as Cerberus, Blackstone and Apollo.
Since then, vendors have introduced much higher termination fees, as well as specific performance points that actually require buyers to close. Most recently, a Delaware state court in 2021 ordered private investment group Kohlberg & Co to close a buyout of a cake-making business called DecoPac.
Kohlberg argued that it was allowed to withdraw from the deal because the DecoPac business suffered a “significant adverse effect” when the pandemic unfolded between signing and closing. The court rejected this argument and ruled that DecoPac could force Kohlberg to close, which it did.