Elon Musk's $1 billion Twitter headache could turn into a migraine, here's why
Elon Musk might have to pay Twitter a termination fee of $1 billion under circumstances where he fails to secure enough debt funding to complete his $44 billion deal to buy the company. It could personally cost the world's richest man $1 billion if the deal falls through due to equity, debt, and or margin loan financing not being funded.
On the other hand, Twitter will owe Musk a $1 billion breakup fee should the board cancel the purchase in order to sell the company to another buyer before the deal is closed with Musk. Twitter will also owe the amount to Musk if the company’s board recommends its stockholders vote against the merger. A side note in the full agreement and plan of merger says that Musk will generally be allowed to tweet about the deal “so long as such Tweets do not disparage the Company or any of its Representatives.” The deal, scheduled to close by October 24, could be delayed for up to six months for antitrust clearance, among other reasons.
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Elon Musk bought Twitter for $44 billion, in a deal that he struck on Monday, April 25. The firm, which is publicly traded, will now become a private company owned by Musk. Musk reportedly negotiated a purchase price of $54.20 per share, and has been a steadfast proponent of ‘free speech’ on Twitter. The Tesla co-founder had earlier opened up about an ‘edit button’ on the platform, and went on to hold a poll, deliberately misspelling yes and no, possibly to bring to the users' attention that the button is needed as people often make typographical errors while tweeting. Twitter has reportedly now confirmed that the 'edit button' will be introduced.
Musk is one of the most prolific users of Twitter with more than 83 million followers. In January, he began amassing a stake totaling about 9% and had ramped up his criticism of the microblogging platform by March, alleging that Twitter's growth was inflated by bots. He also said that the platform's feeds are overwhelmed with automated junk posts, and that the company's algorithms are biased. "I hope that even my worst critics remain on Twitter, because that is what free speech means," Musk has now tweeted.
I hope that even my worst critics remain on Twitter, because that is what free speech means
— Elon Musk (@elonmusk) April 25, 2022
"Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated," Musk has said in a statement released by Twitter. "I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots and authenticating all humans. Twitter has tremendous potential - I look forward to working with the company and the community of users to unlock it."
The deal seems very good at first glance, but Reuters has claimed that there is still reason to believe that Musk may get cold feet. It also believes that market factors beyond his control still have the potential to sink the $44 billion deal. It should be noted here that the deal has actually not gone through yet. The sum has not been transferred either. This means things could still go wrong.
According to filings with the Securities and Exchange Commission, Musk offloaded about 4.4 million shares of his electric vehicle company which was roughly worth $4 billion, following his bid to take Twitter private. The filings showed that the bulk of the sales was made on Tuesday, and Tesla shares fell 12% that day but edged higher on Wednesday by less than one percentage point. As the filings became public, Musk posted on Twitter, “No further TSLA sales planned after today.”
The deal has already cost Musk more than he bargained for. Reuters noted that the bounce back in Tesla stock “would more than makeup” for the $1 billion break fee if Musk abandons the deal. The column also explains how China is home to half of Tesla’s production and a quarter of the company’s revenue. China and Twitter are huge foes considering the company’s fights with Beijing over Hong Kong protests. If China interferes, Musk might as well have to walk away from buying Twitter to untangle the mess.
Musk is the largest shareholder in SolarCity, SpaceX, and Tesla. He has built a unique business empire, but in the process of building it, the businessman has used some strange financial moves. For instance, Musk had bought bonds issued by one company using funds from another. In fact, he has even taken out $475 million in personal credit lines to buy shares in SolarCity and Tesla when they required capital — a credit secured using $2.51 billion of his shares in the two companies. This practice is not at all common among CEOs as it can startle shareholders to a great degree.
In another instance, Musk had sold all seven of his homes in California for $128million. Musk's decision came after singer Grimes claimed that her former partner lives 'below poverty line' sometimes. Musk had announced in 2020 that he would be downsizing his life and would own "no house". He sold the properties for about $128 million between June 2020 and November 2021, making a profit of around $25 million.