> Much of the negotiation in a merger agreement is over what might go wrong: How could the deal fall through, and what would happen if it does? We talked about the main issues yesterday, and let’s go through them again.
> 1. Can Musk just change his mind? The short answer is no. If Musk changes his mind without a good reason, Twitter can force him to close the deal, as long as his debt financing is available. That is, if all of the conditions to closing are satisfied, and if Musk’s banks are willing to fund the $13 billion of Twitter debt and $12.5 billion of Tesla margin loans that they’ve promised, then Twitter can force Musk to put up the $21 billion of cash that he has promised and close the deal. (Section 9.9(b).) Short of that, though — short of actually forcing Musk to close the deal, which is tricky — Musk’s liability is limited to a reverse termination fee of $1 billion.[7] This is exactly what I laid out yesterday, except that I assumed the reverse termination fee would be $1,420,690,000, because Elon Musk loves meme numbers and Twitter seems willing to play along. The $1 billion breakup fee, while pretty standard for a deal of this size, is bizarre for an Elon Musk deal. Not a 420 in sight! (420 is a weed joke.)
> 2. What if Twitter’s business breaks? Musk does not have to close the deal if there has been a “material adverse effect” at Twitter. (Sections 4.9 and 7.2(b).) “Material adverse effect” is defined on page 5 of the agreement and it is long. Actually the definition doesn’t say much; it just says, tautologically, that a “Material Adverse Effect” is “any change, event, effect or circumstance which, individually or in the aggregate, has resulted in or would reasonably be expected to result in a material adverse effect on the business, financial condition or results of operations” of Twitter. All the action is in the exceptions to the MAE. As I suggested yesterday, there are lots of them, and it is somewhat difficult to think of an event that would cause a material adverse effect on Twitter’s business but not be covered by an exception to the MAE. If Twitter does badly due to all sorts of general conditions (changes in law, general economic and financial conditions, pandemics, etc.), that does not count as an MAE. If Twitter fails “to meet internal, analysts’ or other earnings estimates or financial projections or forecasts for any period,” that doesn’t count as an MAE; just having bad earnings isn’t enough. And, as usual, bad effects that result from “the negotiation, execution, announcement, performance, consummation or existence of this Agreement or the transactions contemplated by this Agreement” do not count as an MAE, though here they felt it necessary to spell out “including (A) by reason of the identity of Elon Musk, Parent or any of their Affiliates or their respective financing sources, or any communication by Parent or any of its Affiliates or their respective financing sources, including regarding their plans or intentions with respect to the conduct of the business of the Company.” If Elon Musk breaks Twitter by tweeting his plans for it, he still has to buy it.
https://www.bloomberg.com/opinion/articles/2022-04-27/bill-h...
