Elon Musk will have to fork over a whopping $1billion if his $44billion Twitter deal falls through – however, economists say the mogul will likely enjoy a hefty discount if he writes the fine off as a tax loss.
The markdown, experts say, would see Musk save $400 million – making the real cost of the break-up about $600 million.
Musk, who is the world’s richest man, announced he was walking away from the highly publicized deal Friday, causing the social media’s share price into a freefall over the weekend.
Valued at $54.20-a-share when Musk and Twitter initially drew up the deal, Twitter’s share price has since fallen to $34.64 at Monday’s opening bell, a 6.3 percent drop from Friday’s close.
The loss sets the pace for Twitter’s biggest drop in nearly two months, as trading begins again Monday and investors gear up for an inevitable legal battle between Musk, 51, and the social media giant.
Twitter is set to file a lawsuit against Musk this week in Delaware’s chancery courts, which generally deal with business matters in hearings with no jurors.
Bosses want to force him to complete the deal. He could also be ordered to pay a settlement amount, or could swoop in with a lower offer now Twitter’s value has tanked.
Elon Musk will have to fork over a whopping $1billion if his $44billion Twitter deal falls through – but experts say the mogul will enjoy a $400m discount if he writes the fine off as a tax loss
Musk, who is the world’s richest man, announced he was walking away from the highly publicized deal Friday, causing the social media’s share price into a freefall over the weekend
Musk backed out of his blockbuster deal on Friday, citing the company’s refusal to hand over information on the number of fake accounts on its site as the reason for the break up.
Twitter, meanwhile, has argued that it’s provided Musk a ‘firehose’ of raw data on hundreds of millions of tweets since he raised the issue again last month, after bringing it up upon the deal’s inception in April.
Twitter has said for years in regulatory filings that it believes about 5 percent of the accounts on the platform are fake.
Musk agreed to a $1 billion break-up fee as part of the buyout agreement – and Twitter CEO Parag Agrawal and the company have since made it clear that they are preparing for a legal fight to force the sale.
New York tax lawyer Robert Willens, however says that if Musk will only have to fork over the fraction of the sum, since the South African mogul can write the payment off as a capital loss, to offset gains garnered by Musk during the fiscal year.
‘It’s good to keep in mind that the payment would be treated as a capital loss, which [Musk] can use to offset capital gains he realized upon his recent sales of some of his portfolio holdings,’ Willens told MarketWatch Friday of the prospective fine.
‘If that capital loss can offset short-term capital gains, the real cost of the termination fee would be reduced by about 40% of its face amount.’
The sell-off seen over the weekend, meanwhile, suggests, strongly, that Wall Street has serious doubts that the deal will go forward as a legal battle looms.
‘This is going to be a long and ugly court battle (Twitter has already hired counsel) ahead in which the fake account/bot issue will be scrutinized for all to see and casts a dark cloud over Twitter’s head in the near term,’ Wedbush analyst Dan Ives, who follows the company, said Monday.
‘For Twitter this fiasco is a nightmare scenario and will result in an Everest-like uphill climb for Parag & Co. to navigate the myriad of challenges ahead around employee turnover/morale, advertising headwinds, investor credibility around the fake account/bot issues, and host of other issues abound.’
Twitter on Sunday hired a heavy-hitting Delaware-based law firm to sue Musk for backing out of his $44billion deal to buy the company.
The social media giant brought in Watchell, Lipton Rosen & Katz, and plans to file suit against Musk early this week, Bloomberg reported.
TIMELINE OF BILLIONAIRE ELON MUSK’S BID TO CONTROL TWITTER
January 31: Musk starts buying shares of Twitter in near-daily installments, amassing a 5% stake in the company by mid-March.
March 26: Musk, who has 80 million Twitter followers and is active on the site, said that he is giving ‘serious thought’ to building an alternative to Twitter, questioning free speech on the platform and whether Twitter is undermining democracy. He also privately reaches out to Twitter board members, including his friend and Twitter co-founder Jack Dorsey.
March 27: After privately informing them of his growing stake in the company, Musk starts conversations with Twitter’s CEO and board members about potentially joining the board. Musk also mentions taking Twitter private or starting a competitor, according to later regulatory filings.
April 4: A regulatory filing reveals that Musk has rapidly become the largest shareholder of Twitter after acquiring a 9% stake, or 73.5 million shares, worth about $3 billion.
April 5: Musk is offered a seat on Twitter’s board on the condition he amass no more than 14.9% of the company’s stock. CEO Parag Agrawal said in a tweet that ‘it became clear to us that he would bring great value to our Board.’
April 11: Twitter CEO Parag Agrawal announces Musk will not be joining the board after all.
April 14: Twitter reveals in a securities filing that Musk has offered to buy the company outright for about $44 billion.
April 15: Twitter’s board unanimously adopts a ‘poison pill’ defense in response to Musk’s proposed offer, attempting to thwart a hostile takeover.
April 21: Musk lines up $46.5 billion in financing to buy Twitter. Twitter board is under pressure to negotiate.
April 25: Musk reaches a deal to buy Twitter for $44 billion and take the company private. The outspoken billionaire has said he wanted to own and privatize Twitter because he thinks it’s not living up to its potential as a platform for free speech.
April 29: Musk sells roughly $8.5 billion worth of shares in Tesla to help fund the purchase of Twitter, according to regulatory filings.
May 5: Musk strengthens his offer to buy Twitter with commitments of more than $7 billion from a diverse group of investors including Silicon Valley heavy hitters like Oracle co-founder Larry Ellison.
May 10: In a hint at how he would change Twitter, Musk says he’d reverse Twitter’s ban of former President Donald Trump following the Jan. 6, 2021 insurrection at the U.S. Capitol, calling the ban a ‘morally bad decision’ and ‘foolish in the extreme.’
May 13: Musk said that his plan to buy Twitter is ‘ temporarily on hold.’ Musk said that he needs to pinpoint the number of spam and fake accounts on the social media platform. Shares of Twitter tumble, while shares of Tesla rebound sharply.
June 6: Musk threatens to end his $44 billion agreement to buy Twitter, accusing the company of refusing to give him information about its spam bot accounts.
July 8: Musk tells Twitter he is terminating agreement because firm wouldn’t hand over information on spam bots
July 12: Twitter files suit seeking a court judgement forcing Musk to complete the merger at the agreed price
The hiring of Wachtell gives the company access to lawyers Leo Strine and Bill Savitt, who previously served as Chancellors of the Delaware Chancery Court.
Delaware’s chancery courts deal with non-jury proceedings overseen by judges known as chancellors.
They often tackle business wrangles, with many top US firms – including Twitter – basing their corporate headquarters there, even when their main offices lie elsewhere.
Chancery courts cannot order punitive damages to be paid, and generally hear cases more quickly than criminal trials, with the Twitter debacle likely to be wrapped-up within a few months.
Musk hired Emanual Urquhart & Sullivan LLP., the firm which defended him in a 2019 defamation case, and is currently representing him in lawsuit related to Tesla.
The billionaire entrepreneur and CEO of Tesla and SpaceX took the stage at the Allen & Co Sun Valley Conference, an annual gathering of media and technology executives in Idaho, less than 24-hours after he announced he was terminating his $44 billion deal to buy Twitter Inc.
Musk’s arrival at the conference, known as the ‘billionaires’ summer camp,’ delivered a jolt to the off-record event this week, where the headline-making typically happens beyond the prying eyes of the media.
The interview was conducted by Sam Altman, CEO of OpenAI, an artificial intelligence research company, funded by Musk and several others, as the world’s richest man discussed the possibility of life on Mars in the future, but stayed silent about Twitter.
‘It just seems like an absolute mess,’ said one senior media executive, who spoke on condition of anonymity ahead of the interview. ‘The guy makes his own rules … I’d hate to be Twitter, where you have to take this guy seriously.’
Sun Valley is typically covered like an athleisure version of the Met Gala, with photographers capturing the arrivals of fleece-vested media moguls and reporters making note of power-lunches at the Konditorei cafe on the property.
This year, the five-day, invite-only conference, running from July 6 to 10, is being held at the edge of Idaho’s Sawtooth National Forest in a tiny town of just 1,500 people.
One Hollywood power-broker on Friday expressed hope that the Musk interview would enliven the conference’s staid, cerebral atmosphere this year.
Following Musk´s announcement, one chief executive noted the elephant in the room – Saturday´s remarks might well be uncomfortable to two conference attendees: Twitter CEO Agrawal and Chief Financial Officer Ned Segal.
One of Musk’s last public messages to Agrawal came in the form of a tweet of a poop emoji in response to the Twitter CEO’s defense of how the company accounts for spam bots.
It is not clear if Musk has met Agrawal or Segal at the Idaho event.
Musk’s attorneys had delivered an eight-page letter to Twitter, saying he planned to call off the deal to acquire the social network.
The document, filed with the Securities and Exchange Commission, alleged Twitter failed to respond to repeated requests for information over the past two months, or obtain his consent before taking actions that would impact its business – such as firing two key executives.
Experts speculated the move may have been a bid to drive the price down. Musk initially offered $54.20 per share in April, but the price was down to $36.81 on Friday night.
Bret Taylor, Twitter’s chairman, tweeted on Friday the board was ‘committed to closing the transaction’ under the current terms of the deal and they were ‘confident’ they would win.
Also attending the annual Allen & Co Sun Valley Conference, in Idaho, is Twitter CEO Parag Agrawal (left), who arrived on Wednesday with his wife, Vineeta
Attorney Mike Ringler – acting for Musk – claimed Twitter was in material breach of multiple provisions of the agreement.
In the documents filed to the SEC, Ringler wrote: ‘Mr. Musk is terminating the Merger Agreement because Twitter is in material breach of multiple provisions of that Agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse Effect.
‘While Section 6.4 of the Merger Agreement requires Twitter to provide Mr. Musk and his advisors all data and information that Mr. Musk requests ‘for any reasonable business purpose related to the consummation of the transaction,’ Twitter has not complied with its contractual obligations.
‘For nearly two months, Mr. Musk has sought the data and information necessary to ‘make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform.’
‘This information is fundamental to Twitter’s business and financial performance and is necessary to consummate the transactions contemplated by the Merger Agreement because it is needed to ensure Twitter’s satisfaction of the conditions to closing, to facilitate Mr. Musk’s financing and financial planning for the transaction, and to engage in transition planning for the business.
‘Twitter has failed or refused to provide this information. Sometimes Twitter has ignored Mr. Musk’s requests, sometimes it has rejected them for reasons that appear to be unjustified, and sometimes it has claimed to comply while giving Mr. Musk incomplete or unusable information.’
Musk had previously threatened to halt the deal unless the firm showed proof spam and bot accounts were fewer than 5 percent of users who see advertising on the social media service.
Musk appears relaxed over the tumultuous deal. Prior to the conference, he was in the South of France last month attending galas and weddings with Natasha Bassett
The pair chatted, drank wine and ate fries as they caught up in between events in the busy Riviera hotspot
But Twitter immediately threatened to take legal action and said it was confident it would win.
Taylor tweeted: ‘The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement.
‘We are confident we will prevail in the Delaware Court of Chancery.’ That message was later retweeted by CEO Agrawal.
Adam Sterling told DailyMail.com: ‘The Delaware courts does a pretty good job of balancing shareholder and corporate interests.’
He added: ‘Twitter has constantly found itself in tough positions here. I think clearly with Elon attempting to terminate the deal they are obligated to pursue legal action against him based off of their fiduciary obligations to their shareholders. It’s all shocking but not surprising.’
In an internal memo, Twitter’s general counsel reportedly said: ‘Given this is an ongoing legal matter, you should refrain from Tweeting, Slacking, or sharing any commentary about the Merger Agreement.’
Speaking to NBC News about the collapsed deal, an anonymous Twitter employee said that Musk had ‘f**king destroyed the company.’
Musk is currently embroiled in a months-long deal to buy Silicon Valley social media giant Twitter for roughly $44 billion. His stark anti-remote sentiments would likely fly in the face of the company’s more relaxed work from home rules
The employee said: ‘I guess it feels like we won. But it feels like the end of the movie, where the characters are bloodied and bedraggled with a Michael Bay explosion behind them. We could see this was coming, but in the meantime he’s f**king destroyed the company.’
During an all-hands meeting with employees in April, Agrawal attempted to quell employee anger after workers demanded answers to how managers planned to handle an anticipated mass exodus prompted by Musk.
Agrawal stood to make $42 million if the Musk deal went ahead.
On Monday Musk took to Twitter to continue to taunt the company over what he has described as a lack of data.
Early Monday, Musk took to Twitter to mock the social media company for taking him to court for backing out of the deal, offering a series of memes.
The billionaire, 51, shared one showing a picture of Chuck Norris at a chess board with one pawn confidently staring down a full set of black pieces.
Another appeared to poke fun at the social media giant for taking legal action because it means they will have disclose their spam bot details that he wants.
The series of comments were shared alongside pictures of him hysterically laughing on the right-hand side.
The caption read: ‘They said I couldn’t buy Twitter; Then they wouldn’t disclose bot info; Now they want to force me to buy Twitter in court; Now they have to disclose bot info in court.’
Musk long stated his belief that Twitter is being dishonest about the number of fake accounts on the platform
In the second post, Musk tweeted a pic of meme legend and action star Chuck Norris playing a game of chess
Musk’s decision is likely to result in a protracted legal tussle between the billionaire and the 16-year-old San Francisco-based company.
Disputed mergers and acquisitions that land in Delaware courts more often than not end up with the companies re-negotiating deals or the acquirer paying the target a settlement to walk away, rather than a judge ordering that a transaction be completed.
That is because target companies are often keen to resolve the uncertainty around their future and move on.
Twitter, however, is hoping that court proceedings will start in a few weeks and be resolved in a few months, according to a person familiar with the matter.