Even as his $44 billion takeover was on the wire, Elon Musk kept Twitter guessing.
Normally, attorneys and advisors on either side of a corporate transaction work closely together to ensure a smooth closing. But as time ticked away towards the court-imposed Oct. 28 deadline for closing the takeover, Musk’s camp mostly worked in isolation, leaving Twitter on the sidelines with fingers crossed.
“We didn’t know when we would be closing Thursday night until 15 minutes before it happened,” a Twitter adviser said.
After hearing that the deal was done, those with skin in the game breathed a sigh of relief. “Man, I’m glad it’s over 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 was one of the most colorful and chaotic dramas in corporate history.
It brought together some of Wall Street’s most powerful players – 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 bigwigs of the Silicon Valley and an army of lawyers.
Even for seasoned negotiators, Musk is unorthodox Twitter The takeover broke ground as the parties engaged in a fierce legal battle. At Twitter law firm Wachtell Lipton, young lawyers have become “meme-splainers” for their senior colleagues, deciphering Musk’s esoteric internet posts and finding ways to use some of them – including including an emoji of a pile of poo – against him.
The episode opened a window into how Musk does business, as he went from one of Twitter’s most-followed users to owner, with the task of turning around a struggling company with outsized influence. on world politics and culture.
The case comes together
Musk’s acquisition of Twitter began as it ended: in haste.
The Tesla chief began building a 9% stake in Twitter in late March, prompting the social media company to offer him a seat on the board. He accepted. But then, after being chastised by chief executive Parag Agrawal for running a poll asking “Is Twitter dying?”, Musk instead decided to buy the whole company, offering 54, $20 per share – the “420” widely interpreted as a reference to marijuana cultivation.
The $13 billion financial package, one of the largest ever 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 funding saw little risk in supporting Musk. But that was before debt markets began to freeze later this summer. Banks and Musk would quickly regret their haste as interest rates soared and tech stocks plunged.
Meanwhile, Morgan Stanley, led by star investment banker Michael Grimes, rushed to find equity investors to participate in the takeover and ease Musk’s financial burden. Potential suitors for US private equity such as Thoma Bravo were probed but ultimately rejected.
Instead, Musk has raised more than $7 billion in equity commitments from an unusual mix of investors, including Silicon Valley billionaire Larry Ellison, cryptocurrency exchange Binance, companies venture capitalists 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 battle showed the co-investors did little analysis on their own, relying on Musk. “If you’re considering equity partners, my growth fund is $250 million with no additional work required,” Marc Andreessen wrote.
Musk’s swoop came at a time of weakness for Twitter, which was struggling with slowing ad sales and lackluster product innovation under a little-known new chief executive. Some thought Musk could breathe new life into the failing platform.
He also won plaudits from libertarian and conservative Silicon Valley figures in his orbit – including David Sacks, Jason Calancis, Joe Lonsdale and Peter Thiel – who spoke out against social media censorship. Mathias Döpfner, managing director of German media group Axel Springer, even wrote Musk a detailed proposal for a “genuine free speech platform.”
Support also came from Twitter founder and former chief executive Jack Dorsey, who encouraged Musk and criticized the company’s directors as “terrible” despite serving alongside them on the board.
Despite this enthusiasm, tech markets soured, as did Musk’s appetite for the deal.
The case falls apart
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 night in July, Musk announced he was terminating the acquisition, accusing Twitter of multiple violations of the merger agreement, including misrepresenting the number of fake accounts in public filings. Shares of Twitter fell to $33, or 40% below the trade price.
Twitter had been bracing for Musk to walk away from the deal since he started hinting he had second thoughts and was quietly preparing for litigation, hiring Wachtell Lipton in June. The company has 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 for $54.20.
The filing contained screenshots of Musk’s own tweets, including a poo emoji sent to Agrawal, and accused him of repeatedly breaching the merger contract’s non-disparagement clause. Twitter said Musk just wanted out because of the tech stock crash.
“Musk apparently believes that he – unlike all other parties subject to Delaware contract law – is free to change his mind, destroy the company, disrupt its operations, destroy shareholder value and s ‘go away,’ Twitter said at the time.
Company advisers were surprised Musk didn’t fire the first shot in court to declare the merger agreement invalid. It took weeks for the billionaire to file his counterclaims.
In the days following Twitter’s lawsuit, negotiators advising Musk pushed him to explore a settlement to avoid a protracted public legal battle, according to people briefed on the matter.
But Musk had no interest in getting a discount. At this point, Musk was only listening to Alex Spiro, a brash Quinn Emanuel litigator better known for his list of celebrity clients than his experience in complex M&A battles. Spiro alienated Musk’s other advisers to the point that they could barely talk to him, two of the people said.
Privately, Musk’s advisers reached out to the Twitter team to see if there was a compromise to be found, according to multiple parties on both sides. There seemed to be some wiggle room on the price; Twitter was willing to compromise in order to close the deal quickly. But Musk rejected the idea on Spiro’s advice, two people said.
In public, a bitter legal battle erupted, with both sides accusing the other of not cooperating and going on a rampage during the hearings. The intensity of the fight was heightened by Twitter’s expedited deadline, which was granted by Delaware Judge Chancellor Kathaleen McCormick, giving them just three months to prepare for a trial on October 17.
The best chance for Musk to walk away seemed to be allegations that surfaced in August from a former Twitter security chief turned whistleblower, Peiter “Mudge” Zatko, who said the company had induced the misguided regulators about its cyber health – but those eventually disappeared too.
On either side, several companies were sifting through thousands of pages of documents, emails and text messages. One person estimated that at one point 100 of Wachtell’s 250 attorneys had worked on the case.
“It’s really been a shit show,” said one adviser, who worked for the Twitter side.
The deal comes together – again
Musk did not explain his abrupt reversal, but his legal team had gained little ground in pre-trial battles and Delaware courts have historically almost never let cold-footed buyers walk away.
Whatever the final straw, Musk found he had little chance of winning in court. And at that time, Twitter had no interest in a discounted price, three people said.
On October 4, Musk told the Delaware court in a letter that he intended to complete the transaction on the original terms. Twitter pushed for legal protections to secure the deal. Team Musk, meanwhile, wanted to reserve the right to sue Twitter executives.
Later that week, Musk sought to halt the lawsuit as he pledged to round up the $13 billion in debt financing to complete the deal, accusing Twitter of “not accepting yes for an answer. “. Twitter said Musk’s proposal was “an invitation to further mischief and delay.” The judge gave Musk until October 28 to close the case or face a trial in November.
While some legal experts were surprised, the judge’s decision turned out to be consistent. The agreement was reached on the original terms without a trial. Twitter’s hefty legal bills, which could approach $100 million, must be paid out of the Musk-controlled company’s cash flow.
With characteristic emphasis, Musk visited Twitter’s San Francisco office this week with sink in tow, tweeting “Let it flow” – a meme more commonly used on Reddit or Tumblr than at the end of a battle for control with billions of dollars at stake.
But Twitter advisers — and investors who were able to cash in at a high price — could be forgiven for thinking they’ve had the last laugh.
“The system worked,” said a Twitter attorney. “Modern merger agreement technology and Delaware law were entirely justified.”
Additional reporting by Cristina Criddle in London