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Elon Musk will have to pay Twitter a $1 billion termination fee if he doesn't go through with his $44 billion acquisition of the social network, announced on Monday, per a new SEC filing. The filing, which details the terms of the agreement, indicates Twitter would have to pay the same fee under specific circumstances.
The billionaire tech exec 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.
If Musk requires an exit from this agreement for any reason, it will come at a not-so-inconsequential price, but not one that's unexpected for a deal of this size. In other words, if Musk's financing falls through, Twitter gets $1 billion if the deal is off.
Per the agreement (Parent is the corp. created by Musk which is buying Twitter):
The Merger Agreement also provides that Twitter, on one hand, or Parent and Acquisition Sub, on the other hand, may specifically enforce the obligations under the Merger Agreement, except that Twitter may only cause Mr. Musk’s equity financing commitment to be funded in circumstances where the conditions to Parent’s and Acquisition Sub’s obligations to consummate the Merger are satisfied and the debt and margin loan financing is funded or available. As described above, if the conditions to Parent’s and Acquisition Sub’s obligations to complete the Merger are satisfied and Parent fails to consummate the Merger as required pursuant to the Merger Agreement, including because the equity, debt and/or margin loan financing is not funded, Parent will be required to pay Twitter a termination fee of $1.0 billion.
Earlier reports didn't have this detail correct. They had suggested Twitter would have to pay a termination fee of around 2.5% but Musk would not have to pay a reverse termination fee. They did, however, nail the closing time frame as being around September to October.
The filing also notes that the deal could be terminated if it doesn't close by 5 PM PT on October 24, 2022. However, it does lay out a provision to extend the termination date for an additional six months if needed to meet select closing conditions related to antitrust law, foreign investments laws or other governmental actions that could impact the agreement from closing during that time frame.
Twitter could still take another offer, if one were to materialize before closing, the filing also notes -- but that offer would likely need to come prepared to pay the $1 billion termination fee on the Musk deal. Twitter could also end the deal if stockholders vote against it.
The agreement states the circumstances where Twitter could terminate the deal as follows:
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 (1) Twitter terminates the Merger Agreement to allow Twitter to enter into a definitive agreement for a competing acquisition proposal that constitutes a Superior Proposal; or (2) 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. This termination fee will also be payable by Twitter to Parent in the event that, generally, (1) a competing acquisition proposal for 50% or more of the stock or consolidated assets of Twitter has been publicly announced and not withdrawn, (2) the Merger Agreement is terminated because Twitter’s stockholders fail to adopt the Merger Agreement or because Twitter materially breaches the Merger Agreement, and (3) 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.
More to come...