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Elon Musk has agreed to pay Twitter a $1 billion ‘breakup’ fee if he pulls the plug on the $44 billion take-over deal — and the tech giant agrees to pay the same amount if they opt for a better offer, according to a securities filing.
Musk on Monday sealed a deal to buy Twitter for $44 billion just three weeks after starting the process and later said he hopes to turn the platform into a haven of free speech where even his worst critics can have their say.
According to Tuesday’s securities filing, if the deal between Musk and Twitter falls apart, either side may have to pay a $1 billion fee.
Either party is able to terminate the Merger under certain conditions, but Twitter will be required to pay Musk $1 billion if the company signed a deal with another person or company who have given a better offer.
Other circumstances where Twitter will have to pay the fee includes if Musk terminates the Merger agreement because the tech giant’s Board recommends that the company’s shareholders vote against the deal or in favour of a competing acquisition proposal.
Meanwhile, Musk will be required to pay Twitter the ‘termination fee’ of $1 billion if he is unable to pay the full $44 billion required to complete the deal.
Musk on Monday sealed a deal to buy Twitter for $44 billion just three weeks after starting the process and later said he hopes to turn the platform into a haven of free speech where even his worst critics can have their say
According to Tuesday’s securities filing, if the deal between Musk and Twitter falls apart, either side may have to pay a $1 billion fee
There has been speculation about how Musk will be able to afford to pay for the deal, but last week he filed new documents with the Securities and Exchange Commission today outlining how he would seize the social media giant.
Musk has committed $21 billion in equity, $13 billion from Morgan Stanley in debt facilities and another $12.5 billion from the bank and others in margin loans.
But ‘a portion’ of his shares in Tesla have been put forward as collateral, which analysts feared could have a huge impact on the firm.
Lawyers say the requirement of two parties to pay a ‘termination fee’ if a deal falls apart is not uncommon.
‘It’s actually a pretty plain vanilla merger agreements,’ Steven Davidoff Solomon, a professor at the School of Law at the University of California, told The New York Times.
The deal is not set to close for another three to six months, Twitter has told its employees. CEO Parag Agrawal and Bret Taylor, the chair of the board, addressed staff on Monday and told staff that their jobs are safe for at least six months, until Elon Musk takes over.
Since the announcement of Musk’s bid to takeover Twitter, the tech giant’s shares have gone down slightly. On Monday, the share price was at $51.70. This dropped to $49.68 on Tuesday
Tuesday’s filing said Musk and Twitter are allowed to walk away if the deal if not completed by October 24 this year. If the deal was still waiting for regulatory approval by that time, the two parties would have another six months to complete it. DailyMail.com has contacted Musk and Twitter for comment.
The deal is not set to close for another three to six months, Twitter has told its employees.
It comes as more than $125 billion was wiped off the stock market value of electric car giant Tesla overnight amid concerns that Musk may have to sell down his stake to fund his takeover of Twitter.
Tesla shares tumbled 12.2 per cent on the technology-heavy Nasdaq index in America, with investors spooked by speculation that its multi-billionaire chief executive will sell off his stock to pay for the cash portion of his $44 billion mega deal.
The Tesla owner has personally pledged to pump in $21 billion of cash to help finance the deal.
But questions have been raised over how he will stump up the equity, with much of his fortune tied up in assets such as Tesla and space exploration firm SpaceX.
There are also concerns that the Twitter takeover may see the tech pioneer become distracted and less interested in running Tesla.
Since the announcement of Musk’s bid to takeover Twitter, the tech giant’s shares have gone down slightly. On Monday, the share price was at $51.70. This dropped by nearly 4 per cent to $49.68 on Tuesday – about 10% below the offer price of $54.20 dollars a share which was agreed on Monday.
Market analyst Neil Wilson, at Markets.com, said the decline ‘underscores that investors are naturally anxious about what Musk is up to and whether he can pull it off.’
It is understood that Musk may seek to bring on board other investors to help fund the deal rather than risk destabilising the car maker’s stock, which may also put the wider Twitter deal at risk.
Mr Musk’s 17% shareholding in Tesla accounts for the biggest chunk of his huge $270 billion personal wealth and are also providing the bulk of the financing for the Twitter acquisition.
He has pledged some of his Tesla shares to back a $12.5 billion so-called margin loan for the deal and a big fall in the stock’s value could pose problems.
Mr Wilson said there is a lot of uncertainty over how the takeover saga will play out.
‘Could he still walk away? Certainly a 21 billion US dollar (£17 billion) cheque is a lot even for him to write,’ he said.
‘A 1 billion US dollar (£789 million) break fee might in the end seem less painful.’
Meanwhile, Twitter staff have been told that their jobs are safe for at least six months, until Elon Musk takes over.
CEO Parag Agrawal and Bret Taylor, the chair of the board, addressed staff at 5pm ET on Monday – dodging questions about whether Donald Trump would be allowed to rejoin, and saying instead that it was a question for Musk.
‘It’s important to acknowledge that all of you have many different feelings about what is happening,’ Agrawal said, according to two people who attended the meeting and spoke to The New York Times.
‘Some of you are concerned, some are you are excited, and some of you are waiting to see how this goes. I know this affects all of you personally.
‘It is an emotional day, and I just want to acknowledge it.’
Concerns about immediate job losses were allayed, with employees told that business will operate as usual until a deal closes in next six months, Bloomberg’s Kurt Wagner reported.
Staff were told there would be no layoffs ‘at this time’ – but no guarantees were provided when Musk takes over.
But in a sign of the possible internal unrest, new product launches were delayed amid fears, Bloomberg speculated, that employees could ‘go rogue’ and ‘push something or mess with the product on the way out the door.’
Ahead of the meeting, staff were asked to submit questions, and many were asking about a possible forced return to the office for the all-remote workforce. Others fretted about their shares, journalist Yashar Ali reported.
Musk has said he wants to increase trust in Twitter, which he sees as a digital town square for free speech and debate.
Twitter co-founder Jack Dorsey tweeted Monday that ‘Elon’s goal of creating a platform that is ‘maximally trusted and broadly inclusive’ is the right one.’
He thanked Musk and Twitter CEO Parag Agrawal ‘for getting the company out of an impossible situation.
‘This is the right path…I believe it with all my heart.’
Source: Daily Mail
