Twitter and Elon Musk have both agreed to pay $1 billion in legal fees under certain situations in which Musk’s takeover bid fails.
Depending on the actions of either side, the two will have to pay a termination fee, a commonality for these kinds of takeover deals. This thus forces both sides to negotiate under certain limits as a means of properly regulating the deal.
If Twitter’s board of directors convince their shareholders to reject Musk’s offer, for whatever reason it may be, the Twitter company must pay Musk upwards of $1 billion. This is known as a “no-shop” provision, which bars the company from: “solicit[ing], initiat[ing], knowingly encourag[ing] or knowingly facilitat[ing] any substantive discussion, offer or request that constitutes or would reasonably be expected to lead to a competing acquisition proposal.”
If Musk decides to leave the merger however, he will be forced to pay the company up to $1 billion, making the deal mutual. Both Musk and Twitter have until October 24th, 2022, to come to conclude the deal, however certain conditions may permit extending this deadline.
Twitter’s executive board had initially put into place a “poison pill”, also known as a shareholder rights plan, making them harder to take over, as a means of stalling Musk’s plans to purchase the company. The idea behind this was to allow the board to formulate a new alternative offer, however they could not and the company has put a statement in their agreement that essentially nullifies the rights plan.
Musk may have gotten himself in trouble however with Tesla as he’ll have to come up with some $21 billion to go through with his end of the takeover. It is suspected that he’ll have to sell from his giant stake in Tesla to garner the cash. Fears of this caused Tesla’s stock value to fall over $100 billion just recently, causing economists to wonder whether or not he’ll go through with the acquisition.
The agreement states that if the merger doesn’t happen “because the equity, debt and/or margin loan financing is not funded, [Musk] will be required to pay Twitter a termination fee of $1.0 billion.”
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