Even as his $44 billion (€44.2 billion) buyout came down to the wire, Elon Musk kept Twitter guessing.
Normally, lawyers and advisers on each side of a corporate transaction work closely together to ensure a smooth closing. But as the clock ticked down towards a court-imposed October 28th deadline for the takeover to close, Musk’s camp mostly worked in isolation, leaving Twitter on the sidelines with their fingers crossed.
“We didn’t know when we would close on Thursday night until 15 minutes before it happened,” said one Twitter adviser.
After word came through that the deal was done, those with skin in the game breathed a sigh of relief. “Man am I happy about it ending and, from a shareholder [point of view], ending well,” said one of Twitter’s largest shareholders.
The purchase of the influential social media platform by the world’s richest man has been among the most colourful and chaotic deal dramas in corporate history.
It brought together some of the most powerful players on Wall Street − with JPMorgan Chase and Goldman Sachs advising Twitter under the code name Project Tundra, and Morgan Stanley and Barclays in Musk’s corner under Project X − as well as Silicon Valley bigwigs and an army of lawyers.
Even for veteran dealmakers, Musk’s unorthodox Twitter takeover broke new ground as the sides engaged in a fierce legal battle. At Twitter’s law firm, Wachtell Lipton, junior lawyers became “meme-splainers” to their senior colleagues, deciphering Musk’s esoteric internet postings and finding ways to use some of them − including an emoji of a pile of excrement − against him.
The episode has opened a window into how Musk does business, as he went from one of Twitter’s most-followed users to its owner, with the task of turning around a struggling company with an outsized influence on global politics and culture.
Musk’s acquisition of Twitter started as it ended: hastily.
The Tesla chief began building a 9 per cent stake in Twitter in late March, prompting the social media company to offer him a board seat. He agreed. But then after being reprimanded by chief executive Parag Agrawal for running a poll asking “Is Twitter dying?”, Musk instead decided to buy the entire company, offering $54.20 a share − the “420″ widely interpreted as a reference to marijuana culture.
The $13 billion financing package, one of the largest ever arranged on Wall Street, was quickly cobbled together by a group of banks led by Morgan Stanley. One person involved in the debt financing described the due diligence on the deal as “easy”, because “there was none”.
Others involved in the financing saw little risk in backing Musk. But that was before debt markets started to seize up later in the summer. The banks and Musk would quickly regret their haste as interest rates surged and technology stocks plunged.
Meanwhile, Morgan Stanley, led by star investment banker Michael Grimes, raced to locate equity investors to buy into the takeover and lower Musk’s financial burden. Potential US private equity suitors such as Thoma Bravo were sounded out but ultimately passed.
Equity commitments
Instead, Musk gathered over $7 billion in equity commitments from an unusual mix of investors, including Silicon Valley billionaire Larry Ellison, cryptocurrency exchange Binance, venture capital firms Andreessen Horowitz and Sequoia Capital. He also turned to Middle Eastern backers like QIA, Qatar’s sovereign wealth fund, and Saudi Prince Alwaleed bin Talal bin Abdulaziz al Saud.
Text messages produced during the legal fight showed that co-investors did little analysis of their own, deferring instead to Musk. “If you are considering equity partners, my growth fund is in for $250 million with no additional work required,” wrote Marc Andreessen.
Musk’s swoop came at a moment of weakness for Twitter, which was battling slowing advertising sales and lacklustre product innovation under a new, little-known chief executive. Some believed Musk could breathe new life into the faltering platform.
He also won plaudits from the libertarian and conservative Silicon Valley figures in his orbit − including David Sacks, Jason Calacanis, Joe Lonsdale and Peter Thiel − who railed against social media censorship. Mathias Döpfner, chief executive of Germany’s Axel Springer media group, even wrote Musk a detailed proposal for a “true platform of free speech”.
Support came from Twitter founder and former chief executive Jack Dorsey too, who egged Musk on and criticised the company’s directors as “terrible” despite serving alongside them on the board.
Despite this enthusiasm, tech markets soured − and so did Musk’s appetite for the deal.
The first sign that Musk had buyer’s remorse came in May, when he suddenly declared the deal was “temporarily on hold” pending an investigation into the number of fake accounts on the platform, shocking Twitter.
Then, on a Friday evening in July, Musk announced he was terminating the acquisition, accusing Twitter of multiple breaches of the merger agreement, including misstating the number of fake accounts in public filings. Twitter stock fell to as low as $33 − 40 per cent below the deal price.
Twitter had been preparing for Musk to renege on the deal since he started hinting that he was having second thoughts and had been quietly gearing up for litigation, hiring Wachtell Lipton in June. The firm drafted a potential lawsuit against Musk.
Four days after Musk’s termination letter, Twitter sued him in the Delaware Court of Chancery, seeking to force him to close at the $54.20 deal price.
The filing contained screenshots of Musk’s own tweets, including a poo emoji sent to Agrawal, and accused him of repeatedly breaching a non-disparagement clause in the merger contract. Twitter said Musk simply wanted to walk away because of the crash in tech stocks.
“Musk apparently believes that he − unlike every other party subject to Delaware contract law − is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” Twitter said at the time.
The company’s advisers were surprised that Musk did not fire the first shot in court seeking to declare the merger contract invalid. It took the billionaire weeks to file his counterclaims.
Legal battle
In the days after Twitter’s lawsuit, the dealmakers advising Musk pushed him to explore a settlement to avoid a prolonged public legal battle, according to people briefed on the matter.
But Musk had no interest in securing a discount. At that stage, Musk was only listening to Alex Spiro, a brash litigator from Quinn Emanuel better known for his celebrity client list than his experience in complex merger and acquisition battles. Spiro alienated Musk’s other advisers to the point where they could barely talk to him, two of the people said.
In private, Musk’s deal advisers reached out to Twitter’s team to explore whether there was a compromise to be struck, according to multiple parties on both sides. There seemed to be room for manoeuvre on the price; Twitter was willing to compromise in order to close the deal quickly. But Musk rejected the idea on the advice of Spiro, two people said.
In public, a bitter legal battle erupted, with both sides accusing the other of failing to co-operate and lashing out in court hearings. The intensity of the fight was exacerbated by the accelerated timeframe requested by Twitter, which was granted by the Delaware judge, chancellor Kathaleen McCormick, giving them just three months to prepare for an October 17th trial.
Musk’s best shot at walking away seemed to be allegations that surfaced in August from a former Twitter security executive-turned-whistleblower Peiter “Mudge” Zatko, who said the company had misled regulators about its cyber health − but these eventually fizzled away, too.
Each side had multiple firms sifting through thousands of pages of documents, emails and text messages. One person estimated that at one point, 100 of Wachtell’s 250 lawyers had worked on the case.
“It’s definitely been a bit of a shit show,” one adviser, who worked for the Twitter side, said.
Musk has not explained his abrupt U-turn, but his legal team had gained little traction in pre-trial battles and Delaware courts have historically almost never let buyers with cold feet walk away.
Whatever the final straw, Musk realised that there was minimal chance for him to prevail in court. And by that point, Twitter had no interest in a discounted price, three people said.
On October 4th, Musk told the Delaware court in a letter that he intended to close the transaction on the original terms. Twitter pushed for legal protections to ensure the deal closed. Team Musk, meanwhile, wanted to reserve the right to sue Twitter executives.
Later that week, Musk sought to halt the trial while he pledged to round up the $13 billion in debt financing to finish the deal, accusing Twitter of “not taking yes for an answer”. Twitter declared Musk’s proposal “an invitation to further mischief and delay”. The judge gave Musk until October 28th to close the deal or else face a trial in November.
While some legal experts were surprised, the judge’s decision proved consequential. The deal closed on the original terms without a trial. Twitter’s hefty legal bills, which could approach $100 million, must be paid for out of the cash flows of the company Musk controls.
With characteristic bombast, Musk visited Twitter’s San Francisco office this week with a sink in tow, tweeting “Let that sink in” − a meme more commonly used on Reddit or Tumblr than at the end of a takeover battle with billions of dollars at stake.
But Twitter’s advisers − and the investors who got to cash out at a premium price − might be forgiven for thinking that they have had the last laugh.
“The system worked,” said one Twitter lawyer. “The modern technology of merger agreements and Delaware law were very much vindicated.” − Copyright The Financial Times Limited 2022
