Elon Musk can’t just walk away from the Twitter deal by paying $ 1 billion

Musk’s plan to buy Twitter has worried politicians around the world.

Joe Skipper | Reuters

Elon Musk can’t just abandon his deal to acquire Twitter by paying an agreed breakup fee of $ 1 billion. It’s not that easy.

Musk Friday tweeted that he decided to do it put “on hold” its acquisition of Twitter while researching whether the amount of fake / spam accounts on Twitter is actually only 5%, as the company has long claimed. He followed that tweet with another one reiterating that he is still committed to the acquisition.

But it risks a lawsuit from Twitter for breach of contract that could cost the richest man in the world many billions of dollars.

More of a breakage fee

Musk and investors may want a better deal

Musk’s reasoning for suspending a transaction could be similar: he may want Twitter to lower the selling price. Shares of Twitter fell more than 8% on Friday and were down about 23% from Musk’s agreed purchase price of $ 54.20 per share. Part of the decline is related to a general slump in tech stocks this month. The Nasdaq has fallen another 11% since the market closed on April 25th day Twitter accepted Musk’s offer.

“This is probably a negotiation tactic on Elon’s behalf,” said Toni Sacconaghi, Bernstein’s senior research analyst. CNBC’s “Squawk Box”. “” The market has dropped a lot. He’s probably using the guise of real active users as a negotiation ploy. “

Musk may feel some pressure or obligation on other potential investors on Twitter to lower the price, even if the richest man in the world is more price agnostic.

Moss is in negotiations with external investors for both equity and prime funding to reduce his personal stake in Twitter. If he manages to get a lower price for Twitter, the returns could be higher for outside investors if and when Twitter will return to the public owned or resold.

Because he could still try to save himself

Although he has claimed to have remained committed to buying Twitter, Musk may be tempted to throw in the towel given the losses he is taking on paper as far as his own is concerned. Tesla shareholding. Shares of Tesla have dropped around 24% in the past month.

If Musk believes his losses on Tesla are related to his Twitter acquisition and are significant enough to potentially exceed both the $ 1 billion termination fee and any additional damages that would have been charged to him in court in the event of a loss, he could decide. to leave.

But it would also have to deal with the reputational damage associated with breaking a deal. It’s not clear that any future company would risk selling to Musk with that track record.

Musk was not immediately available to comment.

Twitter may have to renegotiate

Just as Tiffany and LVMH eventually agreed, Twitter may not have many good options outside of re-negotiating with Musk. The company would probably want to avoid a costly protracted lawsuit. Employees may flee because the company does not have a clear future plan. Twitter is already cutting costs. He fired two executives on Thursday and said he will suspend hiring.

When Twitter agreed to sell itself to Musk for $ 54.20, the board didn’t bother pushing for a higher price. partly because there were no other interested buyers at that price. Twitter’s board of directors came to the conclusion that it was unlikely he would return to trading at higher levels anytime soon, given this year’s valuation drop in peer stocks such as Facebook Other Hurried.

Twitter’s best outcome may simply be accepting a lower offer from Musk.

A Twitter spokesperson was not immediately available to comment.

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