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Explained | Will He, Won't He? This Is Why Elon Musk Is Flip-Flopping on Twitter

Musk & Twitter are back to square one: What brought him back? Will the deal finally go through? Is funding secured?

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The fishbowl drama featuring billionaire Elon Musk and social media company Twitter saw another about-turn last week when Musk revealed that he wants to follow through with his purchase of Twitter after all.

Twitter had sued the Tesla CEO back in July this year for pulling out of the $44 billion deal to buy the company, following accusations that the platform made “false and misleading representations" to him about how many Twitter bots there were.

In light of his renewed bid for the company at the same price ($54.20 per share), Musk’s lawyers requested the Delaware Court of Chancery in the United States on Thursday, 6 October, to issue a stay on the trial that was to commence from 17 October.

Judge Kathaleen McCormick granted the stay and has given Musk time till 28 October to close the deal. 

With Musk and Twitter back at square one, what’s still stopping him from going through with the deal, is he struggling to secure funding or is this just another legal strategy by his team, what is actually at the heart of the matter, and where does the court staying the trial for the interim leave each party. Let’s examine.

Explained | Will He, Won't He? This Is Why Elon Musk Is Flip-Flopping on Twitter

  1. 1. What Happened in Court? 

    Based on legal filings, it appears that a condition placed by Musk was that he would proceed with the buyout as long as Twitter dropped its lawsuit. “Twitter will not take yes for an answer. Astonishingly, they have insisted on proceeding with this litigation, recklessly putting the deal at risk and gambling with their stockholders’ interests,” his lawyers wrote in a motion for the court to stay the trial. 

    But Twitter refused to play ball and insisted that the lawsuit continue. In a letter to the judge, Twitter’s lawyer Kevin Shannon wrote, “Until Defendants [Musk] commit to close as required, Twitter is entitled to its day in Court, to demonstrate its entitlement to specific performance and prove Defendants’ breaches so as to ensure complete relief in the event the closing should for any reason not occur.”

    The letter also raised concerns about how Musk has previously wavered on acquiring the company and said, “Defendants have pursued increasingly implausible claims and over and over sought to delay trial on the merits to enforce the Merger Agreement.”

    Finally, in its decision, the court stayed the proceedings “until 5 p.m. on October 28, 2022, to permit the parties to close on the transaction. If the transaction does not close by 5 p.m. on October 28, 2022, the parties are instructed to contact me by email that evening to obtain November 2022 trial dates.”

    Expand
  2. 2. What Is Debt Financing and Is Musk Struggling To Get It?

    Besides the fight in court, another issue standing in Musk’s way of resolving the takeover is him receiving $13 billion in debt financing. In a letter to the US Securities and Exchange Commission (SEC), Musk said that he was willing to return to his previous offer “pending receipt of the proceeds of the debt financing” – a line that was missing in the original deal, Bloomberg reported.

    Debt financing is a way to raise money by selling fixed income instruments like bonds to retail and institutional investors. It is a loan whose principal has to be paid back at a later date and is different from equity financing which involves giving up stakes in the company, requiring no repayment.

    Musk is looking to pony up $46.5 billion to buy Twitter ($44 billion + closing costs) through a hybrid equity and debt financing package. According to Reuters, the group arranging $13 billion in debt financing for Musk’s deal is Morgan Stanley, Bank of America, Barclays, BNP Paribas, MUFG, and Societe Generale.

    Questioning whether Musk can actually secure the funding for the buyout, Twitter’s lawyers said, “Just this morning, a corporate representative for one of the lending banks testified that Mr. Musk has yet to send them a borrowing notice and has not otherwise communicated to them that he intends to close the transaction, let alone on any particular timeline.”

    Global private equity firms Apollo and Sixth Street, who along with others were supposed to pitch in one billion for Musk's proposed buyout, will no longer be doing so, Reuters reported.

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  3. 3. Was Musk Going To Lose the Trial?

    How much of a problem is it? On the debt financing front, banks could reportedly face losses if they are not able to sell all the bonds to institutional money managers, which is a possibility given that credit market conditions have faltered since April, as per Bloomberg.

    However, it is important to note that the Morgan Stanley-led group has underwritten the debt financing package and is unlikely to be able to legally get out of the debt commitments now.

    The timing of his return to the original plan has raised eyebrows as days later, Musk was expected to depose before a judge on his allegations that Twitter executives hadn’t been transparent about how many spam accounts and bots roamed among the platform’s 230 million audience.

    Furthermore, the reversal comes on the back of several pre-trial rulings by Judge McCormick that didn’t exactly go Musk’s way. For instance, the world’s richest person and his team were pulled up for not proactively sharing copies of text messages between himself and Jared Birchall, one of his top advisers.
    Expand

What Happened in Court? 

Based on legal filings, it appears that a condition placed by Musk was that he would proceed with the buyout as long as Twitter dropped its lawsuit. “Twitter will not take yes for an answer. Astonishingly, they have insisted on proceeding with this litigation, recklessly putting the deal at risk and gambling with their stockholders’ interests,” his lawyers wrote in a motion for the court to stay the trial. 

But Twitter refused to play ball and insisted that the lawsuit continue. In a letter to the judge, Twitter’s lawyer Kevin Shannon wrote, “Until Defendants [Musk] commit to close as required, Twitter is entitled to its day in Court, to demonstrate its entitlement to specific performance and prove Defendants’ breaches so as to ensure complete relief in the event the closing should for any reason not occur.”

The letter also raised concerns about how Musk has previously wavered on acquiring the company and said, “Defendants have pursued increasingly implausible claims and over and over sought to delay trial on the merits to enforce the Merger Agreement.”

Finally, in its decision, the court stayed the proceedings “until 5 p.m. on October 28, 2022, to permit the parties to close on the transaction. If the transaction does not close by 5 p.m. on October 28, 2022, the parties are instructed to contact me by email that evening to obtain November 2022 trial dates.”

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What Is Debt Financing and Is Musk Struggling To Get It?

Besides the fight in court, another issue standing in Musk’s way of resolving the takeover is him receiving $13 billion in debt financing. In a letter to the US Securities and Exchange Commission (SEC), Musk said that he was willing to return to his previous offer “pending receipt of the proceeds of the debt financing” – a line that was missing in the original deal, Bloomberg reported.

Debt financing is a way to raise money by selling fixed income instruments like bonds to retail and institutional investors. It is a loan whose principal has to be paid back at a later date and is different from equity financing which involves giving up stakes in the company, requiring no repayment.

Musk is looking to pony up $46.5 billion to buy Twitter ($44 billion + closing costs) through a hybrid equity and debt financing package. According to Reuters, the group arranging $13 billion in debt financing for Musk’s deal is Morgan Stanley, Bank of America, Barclays, BNP Paribas, MUFG, and Societe Generale.

Questioning whether Musk can actually secure the funding for the buyout, Twitter’s lawyers said, “Just this morning, a corporate representative for one of the lending banks testified that Mr. Musk has yet to send them a borrowing notice and has not otherwise communicated to them that he intends to close the transaction, let alone on any particular timeline.”

Global private equity firms Apollo and Sixth Street, who along with others were supposed to pitch in one billion for Musk's proposed buyout, will no longer be doing so, Reuters reported.

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How much of a problem is it? On the debt financing front, banks could reportedly face losses if they are not able to sell all the bonds to institutional money managers, which is a possibility given that credit market conditions have faltered since April, as per Bloomberg.

However, it is important to note that the Morgan Stanley-led group has underwritten the debt financing package and is unlikely to be able to legally get out of the debt commitments now.

Was Musk Going To Lose the Trial?

The timing of his return to the original plan has raised eyebrows as days later, Musk was expected to depose before a judge on his allegations that Twitter executives hadn’t been transparent about how many spam accounts and bots roamed among the platform’s 230 million audience.

Furthermore, the reversal comes on the back of several pre-trial rulings by Judge McCormick that didn’t exactly go Musk’s way. For instance, the world’s richest person and his team were pulled up for not proactively sharing copies of text messages between himself and Jared Birchall, one of his top advisers.
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Last month, Musk’s efforts to get more information out of Twitter regarding the steps taken to address bots were blocked by the court. Besides conflicts over trial dates and disclosing of investors’ names, Musk also suffered a minor setback when the court allowed Twitter to expand its search for evidence on whether he or his team were in contact with Twitter whistleblower Peter Zatko before the allegations were revealed to the public.

“It was pretty clear from her rulings that the judge was laser-focused on the agreement and not the stuff Musk wanted to talk about,” Brian Quinn, a law professor and expert in merger-and-acquisition disputes, told Bloomberg. "His grand theory involving the bots didn’t seem to be gaining any traction with her,” he added.  

(With inputs from Bloomberg and Reuters.)

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