According to the terms of a regulatory filing made on Wednesday, Elon Musk is obligated to pay Twitter a total amount of $1 billion in the event of the deal being terminated. Putting rest to a long string of contemplations and speculations, it was finally made official that the Tesla and SpaceX CEO will be acquiring the company for a whopping $44 million.
The What and Why
Elon Musk’s acquisition of Twitter has been a raging topic of discussion for quite some time now. And finally, when it was made official that Musk will soon take ownership of the social media company, the reactions were mixed. And now a regulatory filing has thrown light on the fact that the deal comes with a $1 billion breakup fee. Musk is under the obligation to pay the company $1 billion in case the $44 billion cash deal is terminated. In the event of Musk being unable to secure sufficient equity, debt, or margin to finance the acquisition, the fee will have to be paid. Seems like the deal has Musk locked indeed.
Talking about locks and binds, it is not just Musk who is bound by the obligation. Twitter is also under a “no-shop” restriction. This prevents the company from talking to other suitors. If they do, it will definitely cost them. In case the company accepts an offer from a competing proposal or decides to recommend shareholders vote against Musk’s proposal, then they will have to pay the same amount of $1 billion. Looks like neither of the parties is going to walk away easily from the deal.
As of now, Musk has raised in debt, a total of $25.5 billion. This includes a margin loan worth $12.5 billion secured against his shares in Tesla. The loan is secured from a group of banks led by Morgan Stanley. The SEC filings also made it clear that the deal could be terminated if it is not finalized by the 24th of October. Or if necessary the date can be extended by up to six months under certain circumstances like antitrust and foreign clearances. The termination fee, although high is only natural for a deal this big. Given the hype and rage around it, the termination fee which applies to both sides adds up quite well. This adds clarity to the fact that the deal is not an arbitrary or whimsical undertaking rather it is a serious one with definite consequences. Only time will tell how well everything will play out in the future.
