The banks that agreed to fund Elon Musk’s $44 billion takeover of Twitter have a financial incentive to help the entrepreneur out of business, but would face serious legal difficulties, according to people close to the deal and corporate law experts.
Most legal experts say the arguments in the case favor Twitter. Musk could back out of the acquisition by paying Twitter a $1 billion fee, according to the terms of the deal. Its $13 billion bank financing for the deal would have to collapse.
Refusing to finance the deal would weigh on the banks’ reputation as reliable sources of debt. However, the banks would have at least two reasons to help Musk exit the acquisition, three people close to the deal said.
Banks could win business with other Musk ventures, like electric car maker Tesla and space rocket company SpaceX, if they help him. But they could also face hundreds of millions of dollars in losses if Musk is forced to complete the deal, the sources said. This is because, as in every major acquisition, banks would have to sell the debt to get it off their books, as they would have to sell the debt at a loss.
It is unclear whether the banks that entered the deal — Morgan Stanley, Bank of America, Barclays, Mitsubishi UFJ, BNP Paribas, Mizuho Financial and Société Générale — will attempt to exit the deal.
The banks are awaiting the outcome of the legal dispute between Musk and Twitter before making any decisions, according to the sources. The trial is scheduled to begin in October.
Spokespeople for Morgan Stanley, Bank of America, Barclays, Mitsubishi and Mizuho declined to comment, while BNP Paribas and Société Générale did not immediately respond to requests for comment.
There’s a problem with the banks that serves as Musk’s escape hatch. He would have to show in court that the banks had refused to meet their debt commitments despite his best efforts.
That would be difficult to prove, given Musk’s public statements against the deal, as well as the private communications between Musk and the banks that Twitter may discover in its request for information, experts told Reuters said.
Representatives for Musk and Twitter did not respond to requests for comment.
Even if the banks show they are not acting at Musk’s request, they would find it difficult to get out of the Twitter deal, experts said. They pointed to the case of chemicals maker Hunstman, which in 2008 sued banks that withdrew from financing its $6.5 billion sale to Hexion Specialty Chemicals.
Apollo Global’s Hexion pulled out of the deal after Huntsman’s fortunes deteriorated, but a Delaware judge ruled the transaction should go ahead. The two banks that finance the deal, Credit Suisse and Deutsche Bank, refused to finance it, arguing that the combined company would be insolvent.
Huntsman sued the banks and a week after the trial they settled. The banks agreed to pay $620 million and provide a $1.1 billion line of credit to Hunstman, which had also previously secured a $1 billion payment from Apollo.
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.