The countdown is now on for Elon Musk and Twitter to close their $44 billion acquisition deal by October 28 or be forced to again prepare for a trial after a judge agreed on Thursday pause the legal proceedings.
What everyone is now waiting on: Musk needs to actually have the money to hand over.
Even the world’s richest man needs a little help for an acquisition of this size. In April, Musk announced he had lined up $46.5 billion in financing for the deal, including two debt commitment letters from Morgan Stanley and other unnamed financial institutions (one for $13 billion and another for $12.5 billion, the latter of which was later reduced to $6.25 billion). Musk himself also committed approximately $21 billion in equity to fund the deal, and later raised an additional $7 billion in equity from investors such as Oracle founder Larry Ellison and cryptocurrency firm Binance.
Much of the sticking point between Musk and Twitter (TWTR) now appears to be over uncertainty around the status of those financing arrangements.
Musk’s team had said in a filing earlier Thursday that there was no need to press on with the ligation because he had committed to closing the deal at the originally agreed upon terms and the banks that had committed debt financing to help him pay for it were “working cooperatively to fund the close.”
Twitter — skeptical after Musk spent months trying to get out of the deal and also wanting to keep the pressure of a trial hanging over him — opposed pausing the proceedings. It raised concerns in a separate filing that an unnamed representative of one of the banks had testified Thursday morning that Musk had not yet sent a borrowing notice and “has not otherwise communicated to them that he intends to close the transaction, let alone on any particular timeline.” Twitter also said Musk should close the deal by next week.
Many legal experts think Musk really is planning to close the deal this time, the most certain anyone has sounded since he first said the deal was “on hold” in May and moved to terminate the agreement in July. Many following the case think that Musk saw the writing on the wall that he was likely to lose at trial and be forced to buy Twitter anyway — spending more money and further damaging the company he would ultimately have to take over in the process.
“I think Musk does intend to close the deal, and I think his reasons for not closing it this second are probably somewhat straightforward,” said Ann Lipton, associate professor of business law at Tulane Law School. The likely reasons, she said, have to do with the time it takes for Musk to finish pulling together all the previously announced financing arrangements in order to close the deal.
Musk is likely trying to help Morgan Stanley market the debt to other investors before telling them to hand him the money to close the deal, according to Lipton. While Musk isn’t required to do that, it would do a favor for a bank that he’s had more than a decade-long relationship with, given the economic environment is more difficult now than when the agreements were first made.
Some have speculated about whether Morgan Stanley and the other banks providing debt financing could try to walk away from the deal now because Twitter is arguably even less valuable now than when the deal was first struck, after Musk spent months making claims about its flaws and following broader social media and digital advertising market declines.
But the bank could face legal ramifications if it tries to back out of its commitment now.
“The only way they could get out of it is to claim a material adverse effect and that Twitter has changed so much since they agreed to the deal that they no longer want to finance the deal,” said George Geis, professor of strategy at the UCLA Anderson School of Management.
Even if the banks tried to back out, Musk may not automatically be off the hook. According to the merger agreement, Musk could in theory walk away from the deal with a $1 billion breakup payment to Twitter if his debt financing were to fall through. However, if Delaware Chancery Court chancellor Kathaleen St. Jude McCormick were to find that Musk was at fault for the financing falling through after his months of disparaging the company, he could potentially face a court order to sue Morgan Stanley to provide the funds or close the deal without it.
Debt financing aside, Musk may also still need a bit more cash to fund his equity portion of the deal, which could require him to sell off more Tesla (TSLA) shares, Lipton said, and he’ll have to wait a few days to be able to do that. Tesla (TSLA) is set to report quarterly earnings on Oct. 19 and executives are typically required not to sell shares in the days prior to an earnings report. (Musk also presumably has a large stake in SpaceX, but because the company is not publicly traded, it’s not clear what it would take to liquidate them on short notice.)
Another cause for some delay: Musk could also be trying to ensure his equity partners are still on board despite all the upheaval he’s created for Twitter over the past several months. Geis said those investors may currently be asking themselves the question: “How should I balance the risk of [participating in] this deal versus the risk of losing my relationship with Musk [if I don’t]?”