Elon Musk has an estimated net worth of nearly $240 billion
Twitter Inc shares have fallen to their lowest level since the social media company agreed to sell itself to Elon Musk for $44 billion on April 25, raising the question of whether the world’s richest person will try to renegotiate the deal.
On Tuesday, the implied probability that the deal would close at the agreed price fell below 50% for the first time, as Twitter shares fell below $46.75. That’s halfway between the deal price and the stock price before Musk revealed on April 4 that he had amassed a stake in the social media company.
Shares closed at $47.26, giving the company a market value of $36 billion.
The news that Musk would lift a ban on former President Donald Trump’s Twitter account, while politically significant, didn’t move the stock.
Twitter stocks have fallen along with the broader collapse of technology stocks as investors worried about inflation and a possible economic slowdown. Some investors, such as shortseller Hindenburg Research, have speculated whether Musk would try to negotiate a lower deal price before closing.
Musk has not indicated that he plans to reopen negotiations and his representatives have declined to comment on the matter.
Here are answers to some important questions.
Why would Musk want to renegotiate the deal?
Musk has an estimated net worth of nearly $240 billion, according to Forbes, but most of his wealth is tied up in shares of Tesla Inc, the electric car maker he leads.
Musk has already moved to raise some money to fund the Twitter acquisition. He sold $8.5 billion worth of Tesla stock and took out a $12.5 billion margin loan secured against his Tesla stock. Last week, he cut that margin loan to $6.25 billion after bringing in fellow investors. Musk said in a regulatory filing that he may be seeking more funding for the deal.
While Musk has said he doesn’t care about the economics of buying Twitter, some investors believe the 27% drop in Tesla shares since he revealed his stake is partly caused by concerns he may need to sell more shares. . Tesla stock would therefore come under less pressure if Musk can negotiate a lower purchase price. Some co-investors may urge him on if they’re concerned about paying too much.
How could Musk negotiate a lower price?
Musk could threaten to walk away from the deal unless the Twitter board agrees to reopen negotiations. He is contractually obligated to pay a $1 billion break-up fee, but Twitter would have to file a lawsuit to get more than that in damages or try to force Musk to close the deal.
There is enough precedent for a renegotiation. Several companies repriced agreed acquisitions as the COVID-19 pandemic broke out in 2020, triggering a global economic shock.
In one case, French retailer LVMH threatened to walk away from a deal with Tiffany & Co. The American jeweler agreed to lower the acquisition price by $425 million to $15.8 billion.
Simon Property Group Inc, the largest shopping center operator in the US, managed to reduce the purchase price of a majority stake in rival Taubman Centers Inc by 18% to $2.65 billion.
Are there any risks in renegotiating?
There’s no guarantee the strategy would work, and it could end up costing Musk more money.
First, Musk would have to convince Twitter that he would actually walk away. Then there are legal hurdles, including a “specific performance” clause that the social media company could argue in front of a judge to force Musk to close the deal.
Acquirers who lose such a business are almost never forced to make an acquisition, but target companies can seek financial support for the price of the aborted deal.
Companies that have fought acquirers in court include medical technology company Channel Medsystems Inc, which sued Boston Scientific Corp for trying to walk away from their $275 million deal. In 2019, a judge ruled that the deal should be closed and Boston Scientific paid Channel Medsystems an undisclosed settlement.
Exemption buyers sometimes turn to “material adverse effect” clauses in their merger agreement, arguing that the target company has been significantly damaged. But the language in the Twitter deal, as in many recent mergers, doesn’t allow Musk to walk away because of a deteriorating business environment, such as a drop in advertising demand or because Twitter’s stock has plummeted.
Musk also waived his right to conduct due diligence when negotiating the Twitter deal, trying to get the company to accept its “best and final” offer. This makes it harder for him to argue in court that Twitter misled him.
(This story was not edited by DailyExpertNews staff and was generated automatically from a syndicated feed.)
