Elon Musk appears to be closer to completing his $44 billion acquisition of Twitter than at any point since he first said the deal was “on hold” nearly five months ago. But it’s not a done deal yet.
Musk earlier this week sent a letter to Twitter
(TWTR) proposing to move forward with the acquisition at the original price of $54.20 per share and suggesting the litigation over his initial effort to exit the deal be dropped. Twitter
(TWTR) replied saying it had received the letter and plans to close the deal on the originally agreed upon terms.
But Twitter and Musk on Wednesday had yet to reach an agreement on ending the litigation, which would avert the trial that’s set to take place in less than two weeks, a person familiar with the negotiations told CNN. The source added it was unclear if the two parties would reach an agreement on Wednesday.
The judge overseeing the case on Wednesday also filed a letter saying that neither party has moved to stay the proceedings in the case and “I, therefore, continue to press on toward our trial set to begin on October 17.”
As it considers Musk’s revived acquisition proposal, Twitter must also think about how to avoid getting stuck in a situation where the billionaire pulls more shenanigans, and drags the process out even longer. That could mean continuing the legal fight, for now, or adding new provisions to the original contract.
If Twitter does decide to play ball with Musk, the process could move fairly quickly — anywhere from days to weeks — because the deal already has the sign-off of regulators as well as Twitter shareholders and board members.
For months, Musk has argued that he should be able to walk away from the deal because Twitter has misrepresented the number of bots and spam accounts on its platform, and later added additional claims from a whistleblower disclosure. Musk’s letter is likely a signal that the Tesla CEO and his lawyers had begun to doubt the likelihood of their success at trial, legal experts say.
If Musk was going to end up being forced to buy Twitter either way, he may have decided it was better to do that before going to trial and presenting public defenses likely to say, in essence, “‘Twitter is such a horrible company that no one is going to want to work for it, own it, or do business with it,’” said Columbia Law School professor Eric Talley. If Musk had lost at trial, he could have also been forced to pay interest to Twitter for delaying the deal, ultimately making the acquisition more expensive, Talley said.
Musk may have also “weighed the considerable inconvenience and arguable misery of his upcoming deposition, and decided enough was enough,” according to Widener University Delaware Law School associate professor Paul Regan. “That could also include a sober assessment from his own expert witnesses about the strength of the evidence to support his claim that Twitter significantly underestimated the number of bots or fake accounts.”
Musk had been set to be deposed starting Thursday, according to a notice of deposition made public earlier this week. However, court filings released Wednesday suggest that Musk may have been trying to avoid deposition. In a letter to the judge dated Sept. 27, lawyers for Twitter said that Musk had agreed “after long resistance” to a two-day deposition starting on Sept. 28, but pulled out, citing “Covid exposure risk.” Twitter’s lawyers immediately sent a new notice to depose Musk starting on Oct. 6 “after any theoretical concern about exposure risk could justify delaying the deposition … Mr. Musk has refused to respond.”
It’s not clear whether Musk and Twitter have now agreed to proceed with the deposition.
Musk’s offer to proceed with the deal may not be enough to stop his deposition or the litigation from continuing. In his letter, Musk said he would move forward with closing the deal provided that the Delaware Chancery Court stays the proceedings. But Twitter may have little incentive to agree to such terms.
“Twitter is probably going to say, look, we definitely want to engage you on this … but we’ve still got a trial on Oct. 17 and until this is signed, sealed and delivered, we’ve got to get ready for trial,” Talley said.
Twitter has a few potential avenues to help ensure that Musk really does follow through with closing the deal this time, in addition to keeping up the pressure of the continuing litigation. Most likely, Talley said, the two sides could agree that Musk must deposit some portion of the $44 billion payment into an escrow account before hitting pause on the trial, which would immediately be paid to Twitter if Musk tries to pull out again.
Perhaps the biggest wildcard as the two sides try to negotiate a deal is the lenders, chiefly Morgan Stanley, who agreed to provide $13 billion in debt financing to help Musk pay for the deal and will now have to pony up in order for the deal to close. Twitter is arguably even less valuable now than when the deal was first struck, after Musk has spent months making claims about its flaws and following broader social media and digital advertising market declines.
“I have been waiting for the lenders to suddenly show up and say they’re no longer willing to fund the deal … we don’t know exactly where they are on this,” Talley said.
It could be yet another factor that complicates the negotiations. However, like Musk, the lenders do have some legal obligations that could make it hard for them to walk away. And ultimately, if all the pieces are in place, experts expect Twitter to say yes to Musk’s deal.
“I suspect that [Twitter’s] board will agree to suspend the litigation and accept the deal,” said Vanderbilt University finance professor Josh White. “The very public saga has certainly taken a toll on them and Twitter employees. It is best for all parties to finish the deal and make a quick and seamless transition.”