In a recent SEC filing, it has been revealed that Elon Musk will have to pay Twitter a whopping $1 billion termination fee if he doesn’t go through with his $44 billion acquisition of the social network. This comes as part of the agreement reached between Musk and Twitter, which was announced on Monday.
The Termination Fee: A Breakdown
According to the filing, Twitter would also have to pay the same fee under specific circumstances. The billionaire tech executive agreed to acquire Twitter and take the company private at $54.20 per share, valuing the company at around $43.4 billion.
The funds for the deal are being pulled from several sources, including financing from Morgan Stanley and other financial institutions which have committed to providing $13 billion in financing, along with $12.5 billion in margin loans to Musk, against his shares in Tesla and other companies. Musk himself is expected to provide equity financing of approximately $21 billion.
What Happens if the Deal Fails?
If Musk requires an exit from this agreement for any reason, it will come at a not-so-inconsequential price. In other words, if Musk’s financing falls through, Twitter gets $1 billion if the deal is off. This termination fee is payable by Twitter to Parent (the corp. created by Musk which is buying Twitter) under specified limited circumstances.
Termination Fee Provisions
The agreement states that upon termination of the Merger Agreement under specified limited circumstances, Twitter will be required to pay Parent a termination fee of $1.0 billion. Specifically, this termination fee is payable by Twitter to Parent because:
- Twitter terminates the Merger Agreement to allow Twitter to enter into a definitive agreement for a competing acquisition proposal that constitutes a Superior Proposal.
- Parent terminates the Merger Agreement because the Board recommends that Twitter’s stockholders vote against the adoption of the Merger Agreement or in favor of any competing acquisition proposal.
- A competing acquisition proposal for 50% or more of the stock or consolidated assets of Twitter has been publicly announced and not withdrawn.
- The Merger Agreement is terminated because Twitter’s stockholders fail to adopt the Merger Agreement or because Twitter materially breaches the Merger Agreement, and
- Within twelve months of such termination of the Merger Agreement, Twitter enters into a definitive agreement providing for a competing acquisition proposal for 50% or more of the stock or consolidated assets of Twitter and such acquisition is subsequently consummated.
A Timeline of Events
The deal could be terminated if it doesn’t close by 5:00 PM EST on October 28, 2022. If the deal fails to close within this timeframe, Twitter will have the right to terminate the Merger Agreement and receive a termination fee of $1 billion.
Implications for Investors
The implications of this termination fee are significant for investors in both Twitter and Tesla. The risk of a failed acquisition could lead to a decline in stock prices for both companies, affecting the financial stability of investors.
Conclusion
In conclusion, the termination fee provision in the agreement between Musk and Twitter is a critical component of the deal. It highlights the risks associated with large-scale acquisitions and the potential consequences for all parties involved. As the deal inches closer to completion, it’s essential for investors and stakeholders to understand the terms of this agreement and its implications on the future of these companies.
