Musk seeks yet another excuse to get out of Twitter buyout: This time it's Mudge's severance check Elon Musk has come up with a new reason to get out of his acquisition of Twitter - a severance payment. In the latest attempt, Musk's lawyers said the merger agreement stated Twitter would not "grant or provide any severance or termination payments or benefits to any Company Service Provider other than the payment of severance …
This is the first one that looks like it might possibly have some chance of success, if what he is claiming is true about severance payments.
That might hinge on some legalities though, if Mudge's severance was already in negotiation at the time of Musk's purchase agreement that may be treated differently than if the process was initiated after the purchase agreement was signed.
Every time something new happens lawyers on both sides are placing an order for another Porsche.
He'd already been sacked before Musk made an offer and agreed to waive due diligence. The sacking was was a matter of public record and provision for severance will have had to be filed with the relevant quaterly report. Ie. nothing was withheld.
What Musk's team is hoping for is that Twitter had some kind of skunkworks that it was deliberately hiding.
Twitter, however, is trying to force the billionaire to complete the deal or pay around $1 billion in penalties for wasting everyone's time.
If Twitter wins, won't they be able to pass legal costs on to Musk as well? I wonder how much this is costing in both sides legal fees.
Seems like Musk could have just paid the one billion and then make another offer ~$33 billion.
$1B is if Musk is prevented from buying Twitter either because of poverty or the US government blocks the deal. (There is also the possibility that Twitter pays $1B to Musk if they sell to someone else presumably for more than $45B.)
Twitter are going for specific performance: Musk buys Twitter for $44B or the court appoints a special master to control Musk's assets and complete the purchase for him (not a forgone conclusion but the wind is blowing hard in that direction). If Musk thought he could get out of this for $1B he would not have sold $8.4B of Tesla shares in April and $6.9B in August on top of the remaining $6.25B of margin loan. ($13B comes from money that Musk's Twitter will borrow and the rest from fearless investors.)
You are right that Musk will effectively be paying Twitter's legal fees if things carry on as they are going. If Musk could listen to advice he would have talked up the value of Twitter. If he got the share price over $54.20 Twitter would be the ones looking for an excuse to end the merger agreement. Even if he only got part of the way he could get cheaper loans from the banks and bring in more outside investment to reduce his risks,
The only 'sane' reason for Musk to trash talk Twitter would be to quietly buy Twitter shares at the current low price so he does not have to buy them later at the full price. I am not convinced it would be sane to do this again while being investigated by the SEC for doing exactly that early this year.
Someone else opined that Musk's Twitter deal provided Musk a convenient excuse to sell a large number of Tesla shares. Without that excuse such sales might be viewed as him de-risking or having otherwise lost some faith in Tesla's growth and the share price might then have taken a knock. But selling to fund the deal, it looks much more benign.
He probably never bargained on Twitter insisting on the deal going through. Even if it goes through, I can't see how Musk and the board could have any productive relationship after all this acrimony.
I've been saying that since before the twitter debacle. He keeps coming up with excuses for selling the vastly overvalued tesla shares since telling the truth could cause his net worth to plummet.
He's getting out while he can get top dollar leaving the suckers to figure too late that they fell for the hype.
Pretty risky way of doing it, signing a contract with no real provisions for avoiding a $44billion spend for a company he doesn't actually want.
My view is that this theory that it was meant as a means of off loading Tesla shares is rubbish. The Tesla share price took a dive the instant the Twitter deal was announced, so it backfired spectacularly, immediately, so it was a poor plan. There are better well established ways of offloading shares without trashing the share price that he might have used, if that was his intention.
I'm not sure the Twitter board will care one jot. If they've got shares themselves, and they're getting a decent personal slice of Musk's $44billion, they might be minded to head for some quality time by the pool, leave Musk to it.
@Flocke Kroes,
The only 'sane' reason for Musk to trash talk Twitter would be to quietly buy Twitter shares at the current low price so he does not have to buy them later at the full price. I am not convinced it would be sane to do this again while being investigated by the SEC for doing exactly that early this year.
Doubly so, if my understanding is correct that the Judge who has been appointed to this takes a pretty strict view about market manipulation.
This whole thing really will be a test for the entire US economy. As I understand it, Musk has signed a deal that committed him to buying Twitter for $44billion no matter what (due diligence was waived). If he does manage to find a way out of that, somehow, then I think there is a real question I think of whether any such deal in the US is worth the paper it's written on.
The market in companies and mergers must be able to operate cleanly, scam-free, otherwise that ends up doing enormous damage to the US economy eventually. It could totally trash the start-up economy for one thing, if bigger companies were allowed to use their weight to manipulate smaller companies into bankruptcy, etc. It's already a minefield, starting up a business, last thing you need is for an acquirer to be able to manipulate your company buy promising but then failing to go through an acuiquisition.
January 2022: Mudge gets sacked.
April Musk: "I want to buy Twitter for $44 billion, I have the money".
Tesla share price plummets.
May 13th: Musk " I'm putting the purchase on hold", Twitter: "no, you've agreed the purchase", Musks Lawyers encourage him to say the deal is still on.
June 6th: Musk Lawyers, "erm our client has the right to investigate bot numbers to obtain the financing needed to complete the transition"
June 28th, Twitter pays Mudge's severance package.
July 8th: Musk "I am totally cancelling the deal because bot numbers bad or something vague"
From MSNBC: "Still, the stakes rose on June 6, when Musk’s attorneys filed a letter indicating that part of Musk's financing for the deal was contingent on his receiving the bot information to evaluate the business. [not in the contract, so not true, a post-hoc excuse] "Musk “is clearly entitled to the requested data to enable him to prepare for transitioning Twitter’s business to his ownership and to facilitate his transaction financing,” the lawyers wrote. "
His claim, that he has the right to cancel the deal based on bot numbers is not in the purchase agreement.
His lawyers claim, that it is somehow *implied*, by the fact he has to finance it, is not true, Musk said he had the money, he agreed the purchase. His ability to raise the money to pay his bill, is not their problem. Therefore any problem with financing the deal is not their problem. Any obstacle he claims in financing the deal, due to bot numbers, is not their problem.
His lawyers claim that the data request is required BEFORE transitioning Twitters business to his ownership, is also specious. He could simply have paid up and taken control. It is not an obstacle to taking control of the company.
If he'd completed the purchase promptly and in good faith, he would have been in a position to dispute the Mudge severance package. But only if he had valid cause (something he has not shown), but the severance had already occurred and so a severance package was ongoing business.
I also don't think the $1 billion walkaway is valid after he agreed the purchase.
I'm expecting Musk to throw all manner of confusing shit into this.
Ignore Musk's tweets and listen to his lawyers. Bot numbers are not the issue. The actual issue is information not provided by Twitter for Musk to calculate the bot numbers. There are words like that in the merger agreement. It is a really slim crack that the lawyers a trying to wedge open but it is still the best chance they have. There is a whole chain of links that the lawyers have to create and assemble: the information existed, Musk asked for it, Twitter could have given it to him, Twitter didn't give it to him, the information would have shown that the MDAU is far more than 5% and that this will cause a significant reduction of profits for years.
As the most direct route to not buying Twitter is so difficult it is not surprising that Musk's lawyers are exploring any other option, even one this desperate.
No.
Not in the slightest.
There's a tiny sliver in truth in there about Twitter providing Musk with figures but this bot thing is total bollocks.
He's signed the deal and now his very expensive lawyers are trying to explain to him that crossing your fingers behind your back when you sign doesn't invalidate it.
It is and it isn't total bollocks. Anyone who's ever visited Twitter can see that there is an awful lot of suspiciously bot-like users, but there is some argument over what constitutes a bot.
It's total bollocks as a reason for Musk to get out of the deal though.
A bit of a miscommunication here: I do not believe there is information that Twitter could have provided Musk to 'calculate' high bot numbers left in the MDAU. These are the links in the chain that Musk's lawyers have to create out of nothing to stand a chance of getting out of the merger agreement. The only pin hole in the merger agreement is if the lawyers can prove Twitter kept quiet about something really import. They are looking for a needle that isn't in the haystack.
Twitter did proide Musk with the information he asked for including the raw data to calculate bot numbers, the Firehose as it's called. But the Firehose contains too much data to be analysed easily so Musk just threw a tantrum and claimed they didn't give him access fast enough, they rate limited it, they were mean to him and they smell funny so the pinky swear he made months ago doesn't count any more.
He offered more money than necessary, waived ALL due dillegence and now his lawyers are trying to fabricate any excuse to weasel out of the deal because there is no exit clause.
But the 'bot numbers' issue is absolutely a deliberate muddying of the waters and irrelevant to the deal. Musk stated publcially several times he thought there were loads of bots on Twitter *before he made an offer* to buy the company, infact it was partly his stated reason for buying it. So it cannot be material whether Twitter is using shit maths to calculate the numbers as Musk himself brought the company under the prestated assumption there were loads anyway. Finding out there are more bots than Twitter's calculations estimate cannot therefore invalidate the deal as he started from the position of not believing the calculations, it would be a strange argument to pull out of a deal because your assumption was correct.
In any case, he waived due diligence and "Musk made his offer without seeking any representation from Twitter regarding its estimates of spam or false accounts" *
It seems the bot number evidence is clearly a disdirection tactic to avoid completing the deal, and everyone seems to be falling for it - it doesn't matter how many bots there are to the deal agreed but everyone seems to think it does.
Musk appeared to only be asking questions of the mDAU after the Tesla price dropped and he could no longer afford to buy, so it's not unreasonable to suggest he started looking for excuses once he had signed a cheque he couldn't cash.
* - source https://corpgov.law.harvard.edu/2022/07/14/twitter-vs-musk-the-complaint/
I really don't understand the basics of this. As I remember it, when Musk first said he wanted to buy it, the Twitter board turned him down. Now, it seems, they can have that particular cake by letting him walk away and waiving the agreements. They might be down a few dollars on lawyers fees, but I'm sure they could suck that up if they wanted. So what changed to make Twitter want to die in a ditch for a deal they didn't want in the first place?
You are really confused.
He signed a deal to pay Twitter well over the market value for ownership of the company. He waived due diligence before signing. Now he wants to get out of it so he's hired very expensive lawyers to try and find a legal loophole.
It doesn't look like there is one.
You'll find a much more detailed article about this here: https://www.techdirt.com/2022/09/12/musk-tries-tries-again-with-yet-another-argument-for-how-he-can-get-out-of-buying-twitter-mudges-severance-package/
Suggest reading a few of their Musk/Twitter articles, they come across as very even handed unlike the mainstream media (and unforch our beloved reg) who seem to always spin things the way Musk wants.
I wonder why?
In addition to the information in the answer above, bear in mind that it is Twitter's owners - the shareholders - who will lose out if Musk is allowed to cancel the deal.
It doesn't matter, now, what the board wants - if Twitter let Musk walk away without giving Twitter's shareholders all that cash he promised then the shareholders will sue the board for allowing it to happen!
Yes, probably. And, of course, there is the complication that the current share price is less about the underlying value of the company and more about taking bets on the outcome of the litigation and how the money will move afterwards!
As one of the biggest internet players, I suspect many Twitter shareholders are fairly risk-averse and may well sell soon as they don't want to price in those risky bets! But I am no stock market analyst (I have no Twitter shares!).
> "the Musk Parties third purported termination is invalid for the independent reason that Mr Musk and the other Musk Parties continue to knowingly, intentionally, willfully, and materially breach the Agreement." [Twitter lawyers]
So they're claiming that this accusation is invalid purely because Musk hasn't completed on the purchase yet??? No claim that the accusation itself is invalid???
Musk might even win if Twitter are using that logic.
[ still missing the Paris icon :-( ]
This may be a kind of obscure, but correct, legal argument. Some of the claims on either side are in *"equity", and in that kind of claim the party seeking relief from the court has to have "clean hands," as in cannot be a wrongdoer. They are saying that since Musk is in breach of the Agreement, he has "unclean hands" and cannot succeed with any of his equitable claims. This doctrine of unclean hands is specifically referred to as the Twelfth Defense in Twitter's August 4 response to Musk's counterclaims.
https://corpgov.law.harvard.edu/2022/08/10/twitter-v-musk-plaintiffs-response-to-defendants-counterclaim/
*The goal in a legal claim is for the defendant to compensate the plaintiff and make her "whole." If the plaintiff wins, the judge will order the defendant to pay money to the plaintiff for loss or injury, also known as "damages."
A plaintiff who seeks equitable relief is asking the court for an injunction. An injunction is a court order compelling a party to do or refrain from doing a specified act, especially in cases where monetary damages cannot be accurately assessed or do not provide a satisfactory resolution.
https://www.findlaw.com/litigation/legal-system/what-is-the-difference-between-a-legal-and-equitable-claim.html
Indeed, always a certainty. Though in this case Twitter shareholders might come out of this at the head of the game too.
I say "at the head" quite carefully, instead of "ahead". Twitter and its shareholders can make the point that being deprived of their $44billion for longer than the agreed closure schedule is in itself a damaging thing, and there's a good chance the court may agree with such representations. If they get the money and such damages, then they're put into the position they were supposed to be by the deal.
Where they may end up getting ahead of the game is if the court is also persuaded to award even more damages (punitive damages?) on top, for causing so much trouble in the first place.
What I don't understand about Musk is that he must know that there's a strong possibility of this, and he may end up in this for a considerable amount more than $44billion. It might be that, when this case is done, and he's been ordered to pay up $44billion plus a few extra on top for costs and damages, he might end up in the situation where "only $44billion" would have the cheaper option.
Having made a mistake, better a clean, hands-off acquisition (a lot of Twitter staff don't relish being owned by Musk, best if he did not get involved in running the company) to preserve as well as possible the company morale, business, and market value, just on the off-chance that it does turn into a business success to justify the acquisition in the first place. Even if it didn't pan out successfully, there'd be a good chance of getting half his money back I'd have thought.
However, the way things are going he will be left with a demoralised husk of a company with users departing in large volumes, and probably no hope of recouping much of that $44billion.
"he might end up in the situation where "only $44billion" would have the cheaper option."But, it turns out he couldn't really afford $44Bn - cheaper is a moot distinction when you can't afford any option, partly because his actions devalued his own stock (except the option to not agree the amateurishly rushed premature agreement in the first place).
Once it became clear he couldn't pay, his only option was to weasel out of the deal, or at least get a judge to accept he is only liable for the $1Bn fee rather than the $44Bn that he can't afford (by arguing he should pay nothing).
One would imagine the other investors he pursuaded to join in on the purchase are having some long conversations with their legal teams about walking away and not having anything to do with Musk's deal. Can't imagine he has much credibility left amongst his peers.
However, the way things are going he will be left with a demoralised husk of a company with users departing in large volumes, and probably no hope of recouping much of that $44billion.
Yes, the shareholders may agree that Musk buying the company is good for them, but that's because they'll get a decent share price. With Musk at the helm, however, I suspect that further dividends will be out of the question and it'll end up a vehicle similar to what Trump has been doing: a loss to write off against taxes.
Speaking of which - allowing him back online (as Musk is certain to allow) will merely speed up the user drain and turn it into a place nobody wants to be seen to use, pretty much like the almost dead "Truth" thing.
In summary, I think Musk has shot himself in both feet here and will be limping for quite some time.
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