Being the world’s richest person has its perks, but they don’t include abandoning a business deal you’ve signed on to without facing the consequences. Tesla CEO Elon Musk will find that out if he decides to walk away from his agreement to buy Twitter.
On Friday Musk tweeted that his $44 billion bid to acquire Twitter, announced last month, was “temporarily on hold” until he can confirm that spam and fake accounts represent less than 5% of the social network’s total users. That tweet caused such an uproar on Wall Street that Musk later said he is “still committed” to making the Twitter deal happen.
Uncertainty over the deal has led some to speculate that Musk either wants to back out of the deal or renegotiate the price. But backing out isn’t so simple because he might face a breach-of-contract lawsuit from Twitter that could cost him billions of dollars, CNBC reported.
Musk and Twitter reportedly agreed to a $1 billion “reverse termination fee” when they reached their deal, but that doesn’t mean Musk can just pay the fee and walk away. As CNBC noted, a reverse breakup fee typically applies when a deal can’t close for some outside reason, such as a regulatory intermediation or third-party financing problems. Buyers can also walk away from deals if fraud is exposed, assuming it has a material adverse effect.
However, the reverse termination fee wouldn’t apply simply because Musk thinks he offered too much money for Twitter. Walking away for that reason means Musk would not only have to pay the $1 billion fee, but also risk being sued for billions of dollars in damages.
The wild card is whether someone worth as much as Musk would let a few billion dollars stop him from backing out of the Twitter deal. Forbes pegs Musk’s net worth at $227.6 billion as of May 16, accounting for the $44 billion Twitter buyout. Even if he were to pay several billion dollars in fees and damages, he’d still have a big pile of money left over.
Musk’s wealth might be one of his stronger cards if he really is trying to renegotiate a lower price from Twitter. Twitter’s stock price sank more than 8% on Friday and continued to drop about 4% early Monday. Shares currently trade near $38 — well below Musk’s agreed-upon purchase price of $54.20 a share.
Some analysts believe Musk has buyer’s remorse and has used his own tweets to get Twitter to return to the bargaining table.
“This is probably a negotiation tactic on behalf of Elon,” Toni Sacconaghi, a senior research analyst at Bernstein, said on CNBC’s “Squawk Box” Friday. “The market has come down a lot. He’s probably using the guise of true active users as a negotiation ploy.”
CNBC also reported that Musk is in discussions with outside investors to reduce his personal stake in Twitter. If he can get a lower price for Twitter, outside investors would reap higher returns if Twitter gets resold or goes public again. Meanwhile, Musk’s own personal wealth has gone south alongside the share price of Tesla, which is down by nearly-one quarter over the past month.
All of which leaves Twitter with few good options right now, experts say. The social media company’s best bet might be to renegotiate its price with Musk to prevent a further selloff of its shares.
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