Eight ways Elon Musk could still get out of buying Twitter
Likelihood: ⚪⚪⚪⚪⚪
Option 4. Musk ignores all the repercussions and bails anyway
It’s a risk, sure. He’s undeniably a cheeky, unpredictable scamp who prioritises his own amusement over regulatory obligations, etc. For Musk to convince Twitter to drop its lawsuit then ghost all of its calls would be in character — but it’d only result in a replay of the lawsuit with the addition of a very irritated judge. Also, Twitter seems alive to the possibility of horseplay, tomfoolery and monkeyshine and has reportedly already requested court protection.
Likelihood of an attempt: ⚫⚫⚫⚫⚪
Likelihood of success: ⚪⚪⚪⚪⚪
Option 5. Filibuster
What if Musk’s request to adjourn the trial is approved? Deal financing commitments expire in April 25, 2023. So, if Musk can agree a pause then somehow stall proceedings for six months, he can walk away — maybe.
Though if we're realistic, probably not. Courts can grant specific performance even after funding’s been pulled. Chancellor Kathaleen McCormick famously ordered Kohlberg & Co to close its purchase of cake decorations maker DecoPac, having found that the PE firm contrived to blow up its financing with unrealistic demands and exaggeratedly bad projections. That’s a useful precedent for the Twitter case judge, one Chancellor Kathaleen McCormick, who’s had no time for Musk’s previous stalling tactics.
Likelihood: ⚫⚫⚪⚪⚪
Option 6. Add someone unacceptable to the ticket
This . . . might work? Musk can syndicate the $33.5bn of his own funding however he likes. In May, before the scuppering efforts began, Musk snagged commitments totalling $7.1bn from investors including Larry Ellison, Sequoia Capital, Qatar Holding, Fidelity Management and crypto firm Binance.
What if some politically charged names were added to that roster? It wouldn’t be entirely out of left field. Musk’s idea to turn Twitter into an “everything app” has an unmistakable echo of WeChat, China’s pre-eminent messaging and surveillance system, whose influence remains under investigation by US authorities. And his unprompted peacemaking efforts have won praise from the Kremlin.
The right wrong co-investor might force an investigation by the Committee on Foreign Investment in the United States, whose due process timeline would likely crash through that April 2023 funding deadline. National security concerns would also add a layer of complication to the court’s view on specific performance. It’s an outlandish idea but, given everything, not entirely implausible.
Likelihood: ⚫⚫⚪⚪⚪
Option 7. Fake death
In 2013 Jose Lantigua, owner and CEO of Circle K Furniture in Florida, reportedly died in Venezuela of mad cow disease. In 2017 he was sentenced to 14 years in prison. Lantigua’s is a tragic story of snowballing debts and attempted insurance fraud, so the comparison with Musk, who appears to be doing it for the lulz, isn’t perfect. It does emphasise that pseudocide (while hypothetically possible) is very difficult, even for normal people who don’t seem to have social-media addictions. Any lawyer advising this course of action is probably not a good lawyer. At the same time, if Musk were to pull it off, he would no longer be required to buy Twitter.
Likelihood: ⚫⚪⚪⚪⚪
Option 8. Actually die
A better strategy, but still not fail-safe. It’s a general principle of law that the contracts of the dead survive to haunt the living. Musk’s estate could be required to fulfil his obligations, including those made to the three Delaware holding companies named in the Twitter deal. Whether a court would apply this principle, and how much Musk would care about its judgment given his untimely passing, are significant unknowns.
Likelihood: ⚪⚪⚪⚪ ⚪
TL; DR they’re all quite stupid
Let’s start with the obvious. Elon Musk’s written proposal to Twitter promises to close the $44bn deal “pending receipt of the proceeds of the debt financing”. The wording sounds a bit sus given recent history, but can it really offer an escape route?
Option 1. The banks pull out
Musk is on the hook for $33.5bn of financing for the Twitter purchase. An additional $13bn of funding will be underwritten by a Morgan Stanley-led syndicate of seven banks. The banks, having capped the maximum rate on the unsecured LBO debt at 11.75 per cent, will be taking a bath when they try to sell it on.
Their options to bail can be found in Exhibit E, towards the bottom of the commitment letter posted in April. Probably the only available option at this point would be to claim a material adverse event at Twitter, perhaps by taking up Musk’s now-abandoned argument that it’s a great big fraud made of bots.
This has some advantages for Musk. Having the banks lead the attack might reduce the risk of having his cringy texts read to the court.
Even so, as many commentators have pointed out, the bots thing is transparent nonsense. And it's doubtful that the biggest business problem for Twitter — its purchaser’s fickleness about whether he actually wants to buy it — is a watertight reason for the banks to pull financing.
Likelihood: ⚫⚫⚪⚪⚪
Option 2. Musk sabotages his agreement with the banks
Unlikely. The ultimate counterparty here isn’t Musk, it’s Twitter, whose shareholders have voted by 98.6 per cent to take the money. And though Musk was expected to sell his vision to potential second-lien debt investors, his participation was never a contractual obligation. There’s no useful means of self-sabotage available, as demonstrated by Musk's sustained public shitbagging of a company he’s now being forced to buy. Underwriting losses have to be weighed against the M&A advisory fees due on completion.
The underwriters and advisers aren’t the same group, with Goldman Sachs and JPMorgan notably absent from the debt deal, but Morgan Stanley is on both sides of the transaction. And if lenders had the option to quit based on Musk’s eccentricities, that probably would’ve happened already.
Likelihood: ⚫⚪⚪⚪⚪
Option 3. Musk collapses his equity financing
He can’t without a material pretext. That’s where we were in July, remember?
Twitter is entitled to obtain specific performance or other equitable relief to enforce Parent’s and Acquisition Sub’s obligations to cause Mr. Musk to fund the equity financing, or to enforce Mr. Musk’s obligation to fund the equity financing directly, and to consummate the closing of the merger, if certain conditions are satisfied, including the funding or availability of the debt financing.
Meaning . . .
Option 1. The banks pull out
Musk is on the hook for $33.5bn of financing for the Twitter purchase. An additional $13bn of funding will be underwritten by a Morgan Stanley-led syndicate of seven banks. The banks, having capped the maximum rate on the unsecured LBO debt at 11.75 per cent, will be taking a bath when they try to sell it on.
Their options to bail can be found in Exhibit E, towards the bottom of the commitment letter posted in April. Probably the only available option at this point would be to claim a material adverse event at Twitter, perhaps by taking up Musk’s now-abandoned argument that it’s a great big fraud made of bots.
This has some advantages for Musk. Having the banks lead the attack might reduce the risk of having his cringy texts read to the court.
Even so, as many commentators have pointed out, the bots thing is transparent nonsense. And it's doubtful that the biggest business problem for Twitter — its purchaser’s fickleness about whether he actually wants to buy it — is a watertight reason for the banks to pull financing.
Likelihood: ⚫⚫⚪⚪⚪
Option 2. Musk sabotages his agreement with the banks
Unlikely. The ultimate counterparty here isn’t Musk, it’s Twitter, whose shareholders have voted by 98.6 per cent to take the money. And though Musk was expected to sell his vision to potential second-lien debt investors, his participation was never a contractual obligation. There’s no useful means of self-sabotage available, as demonstrated by Musk's sustained public shitbagging of a company he’s now being forced to buy. Underwriting losses have to be weighed against the M&A advisory fees due on completion.
The underwriters and advisers aren’t the same group, with Goldman Sachs and JPMorgan notably absent from the debt deal, but Morgan Stanley is on both sides of the transaction. And if lenders had the option to quit based on Musk’s eccentricities, that probably would’ve happened already.
Likelihood: ⚫⚪⚪⚪⚪
Option 3. Musk collapses his equity financing
He can’t without a material pretext. That’s where we were in July, remember?
Twitter is entitled to obtain specific performance or other equitable relief to enforce Parent’s and Acquisition Sub’s obligations to cause Mr. Musk to fund the equity financing, or to enforce Mr. Musk’s obligation to fund the equity financing directly, and to consummate the closing of the merger, if certain conditions are satisfied, including the funding or availability of the debt financing.
Meaning . . .
Likelihood: ⚪⚪⚪⚪⚪
Option 4. Musk ignores all the repercussions and bails anyway
It’s a risk, sure. He’s undeniably a cheeky, unpredictable scamp who prioritises his own amusement over regulatory obligations, etc. For Musk to convince Twitter to drop its lawsuit then ghost all of its calls would be in character — but it’d only result in a replay of the lawsuit with the addition of a very irritated judge. Also, Twitter seems alive to the possibility of horseplay, tomfoolery and monkeyshine and has reportedly already requested court protection.
Likelihood of an attempt: ⚫⚫⚫⚫⚪
Likelihood of success: ⚪⚪⚪⚪⚪
Option 5. Filibuster
What if Musk’s request to adjourn the trial is approved? Deal financing commitments expire in April 25, 2023. So, if Musk can agree a pause then somehow stall proceedings for six months, he can walk away — maybe.
Though if we're realistic, probably not. Courts can grant specific performance even after funding’s been pulled. Chancellor Kathaleen McCormick famously ordered Kohlberg & Co to close its purchase of cake decorations maker DecoPac, having found that the PE firm contrived to blow up its financing with unrealistic demands and exaggeratedly bad projections. That’s a useful precedent for the Twitter case judge, one Chancellor Kathaleen McCormick, who’s had no time for Musk’s previous stalling tactics.
Likelihood: ⚫⚫⚪⚪⚪
Option 6. Add someone unacceptable to the ticket
This . . . might work? Musk can syndicate the $33.5bn of his own funding however he likes. In May, before the scuppering efforts began, Musk snagged commitments totalling $7.1bn from investors including Larry Ellison, Sequoia Capital, Qatar Holding, Fidelity Management and crypto firm Binance.
What if some politically charged names were added to that roster? It wouldn’t be entirely out of left field. Musk’s idea to turn Twitter into an “everything app” has an unmistakable echo of WeChat, China’s pre-eminent messaging and surveillance system, whose influence remains under investigation by US authorities. And his unprompted peacemaking efforts have won praise from the Kremlin.
The right wrong co-investor might force an investigation by the Committee on Foreign Investment in the United States, whose due process timeline would likely crash through that April 2023 funding deadline. National security concerns would also add a layer of complication to the court’s view on specific performance. It’s an outlandish idea but, given everything, not entirely implausible.
Likelihood: ⚫⚫⚪⚪⚪
Option 7. Fake death
In 2013 Jose Lantigua, owner and CEO of Circle K Furniture in Florida, reportedly died in Venezuela of mad cow disease. In 2017 he was sentenced to 14 years in prison. Lantigua’s is a tragic story of snowballing debts and attempted insurance fraud, so the comparison with Musk, who appears to be doing it for the lulz, isn’t perfect. It does emphasise that pseudocide (while hypothetically possible) is very difficult, even for normal people who don’t seem to have social-media addictions. Any lawyer advising this course of action is probably not a good lawyer. At the same time, if Musk were to pull it off, he would no longer be required to buy Twitter.
Likelihood: ⚫⚪⚪⚪⚪
Option 8. Actually die
A better strategy, but still not fail-safe. It’s a general principle of law that the contracts of the dead survive to haunt the living. Musk’s estate could be required to fulfil his obligations, including those made to the three Delaware holding companies named in the Twitter deal. Whether a court would apply this principle, and how much Musk would care about its judgment given his untimely passing, are significant unknowns.
Likelihood: ⚪⚪⚪⚪ ⚪