Even as his $44 billion buyout reached its deadline, Elon Musk kept Twitter on edge.
Typically, attorneys and advisors on each side of a corporate transaction work together to ensure a smooth closing. But as the calendar approached October 28, the court-set deadline for the takeover to end, Musk’s side worked mostly in isolation, leaving Twitter on the sidelines with its fingers crossed.
“We didn’t know when we would close Thursday night until 15 minutes before it happened,” a Twitter consultant said.
After news broke that the deal was done, those with skins on the line breathed a sigh of relief. “Man, I’m glad this is over and, [do ponto de vista] of a shareholder, end well,” said one of the company’s biggest shareholders.
The purchase of the influential social media platform by the richest man in the world ranks among the most chaotic business dramas in corporate history.
He’s brought together some of Wall Street’s most powerful players — with JPMorgan Chase and Goldman Sachs advising Twitter under the codename Project Tundra, and Morgan Stanley and Barclays in Musk’s corner under Project X — as well as Silicon Valley bigwigs and a army of lawyers.
Even for veteran negotiators, Musk’s unorthodox takeover of Twitter broke new ground as the sides became embroiled in a fierce legal battle. At Twitter law firm Wachtell Lipton, young lawyers have become “meme explainers” for their older colleagues, deciphering Musk’s esoteric Internet posts and finding ways to use some of them against him — including an emoji of a lot of poop.
The episode opened a window into how Musk does business, as he went from one of Twitter’s most followed users to owner of the platform, tasked with turning a financially struggling company with enormous influence on global politics and culture.
The business takes shape
Musk’s takeover of Twitter began as it ended: in a hurry.
The Tesla boss began building a 9% stake in Twitter in late March, prompting the social media company to offer him a board seat. He agreed. But then, after being reprimanded by Chief Executive Parag Agrawal for taking a survey asking “Is Twitter dying?” Musk decided to buy the entire company, offering $54.20 a share — with “4.20 ” widely interpreted as a reference to marijuana culture.
The $13 billion financing package, one of the largest ever organized on Wall Street, was quickly put together by a group of banks led by Morgan Stanley. One person involved in debt financing described the deal’s due diligence as “easy” because “there was none.”
Others involved in the funding saw little risk in supporting Musk. But that was before debt markets started to recover at the end of the summer. Banks and Musk would quickly regret their haste as interest rates soared and tech stocks plummeted.
Meanwhile, Morgan Stanley, led by famed investment banker Michael Grimes, was racing to find equity investors to enter the acquisition and reduce Musk’s financial burden. Potential US private equity candidates, such as Thoma Bravo, were scouted but eventually withdrew.
Instead, Musk has gathered more than $7 billion in commitments from an unusual mix of investors such as Silicon Valley billionaire Larry Ellison, cryptocurrency exchange Binance, venture capital firms Andreessen Horowitz and Sequoia Capital. He also turned to Middle Eastern supporters such as QIA, the sovereign wealth fund of Qatar, and Saudi Prince Alwaleed bin Talal bin Abdulaziz al Saud.
Text messages produced during the legal fight showed the co-investors did little analysis on their own, leaving it to Musk. “If you’re considering equity partners, my growth fund comes in with $250 million, no additional work required,” Marc Andreessen wrote.
Musk’s move came at a time of weakness for Twitter, which was struggling with slowing ad sales and weak product innovation under a new, little-known chief executive. Some believed that Musk could breathe new life into the wobbly platform.
He also received plaudits from libertarian and conservative Silicon Valley figures in his orbit — including David Sacks, Jason Calacanis, Joe Lonsdale and Peter Thiel — who protested censorship on social media. Mathias Döpfner, chief executive of German media group Axel Springer, even wrote Musk a detailed proposal for a “true platform for freedom of expression.”
Support also came from Twitter founder and former chief executive Jack Dorsey, who urged Musk and criticized the company’s directors as “terrible” despite standing alongside them on the board.
Despite that enthusiasm, tech markets have soured, as has Musk’s appetite for the business.
the business falls apart
The first sign that Musk had regrets came in May, when he suddenly declared that the deal was “temporarily suspended” pending an investigation into the number of fake accounts on the platform, which shocked Twitter.
Then, on a Friday night in July, Musk announced he was ending the acquisition, accusing Twitter of several violations of the merger agreement, including misrepresenting the number of fake accounts in public documents. Twitter shares dropped to $33-40% below the deal price.
Twitter has been gearing up for Musk to renege on the deal since he began hinting he was thinking better of it and was quietly preparing for litigation, hiring Wachtell Lipton in June. Twitter has drawn up a possible lawsuit against Musk.
Four days after Musk’s termination letter, the company sued him in the Delaware Court of Chancery, trying to force him to close at $54.20 a share.
The document contained screenshots of Musk’s tweets, including a poop emoji sent to Agrawal, and accused him of repeatedly violating the no-depreciation clause in the merger agreement. Twitter said Musk simply wanted out because of the slump in tech stocks.
“Musk apparently believes he – unlike all other parties subject to Delaware contract law – is free to change his mind, destroy the company, stop its operations, destroy shareholder value and walk away,” Twitter said at the time. .
Company advisers were surprised that Musk did not fire the first shot in court to declare the merger agreement invalid. The billionaire took weeks to present his counterclaims [contestações das alegações do autor do processo].
In the days following the Twitter lawsuit, negotiators advising Musk pressured him to explore a settlement to avoid a protracted public legal battle, according to people familiar with the matter.
But Musk had no interest in getting a discount. At that stage, he was just listening to Alex Spiro, a brash Quinn Emanuel litigator better known for his celebrity client list than his experience in complex merger and acquisition battles. Spiro has alienated Musk’s other advisers to the point where they can barely get through to him, two of the people said.
In particular, Musk’s business advisers reached out to the Twitter team to explore whether there was a way to reach a compromise, according to various parties on both sides. There seemed to be room for maneuver in the price; Twitter was willing to make concessions 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 each side accusing the other of not cooperating and lashing out in court hearings. The intensity of the fight was exacerbated by the accelerated deadline requested by Twitter, which was granted by Delaware Judge Chancellor Kathaleen McCormick, giving them just three months to prepare for a trial on October 17.
The best opportunity for Musk to walk away appeared to be allegations that surfaced in August from a former Twitter security exec turned whistleblower, Peiter “Mudge” Zatko, who said the company misled regulators about its cyber health — but that also failed.
Each side had multiple companies sifting through thousands of pages of documents, emails, and text messages. One person estimated that, at one point, 100 of Wachtell’s 250 lawyers had worked on the case.
The deal closes – again
Musk didn’t explain his abrupt turnaround, but his legal team has gained little traction in pre-trial battles, and Delaware courts have historically almost never let cowardly buyers walk away.
Whatever the final straw, Musk realized there was little chance of prevailing in court. And at this point 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 close the transaction on the original terms. Twitter pushed for legal protections to ensure the deal was closed. Meanwhile, Musk’s team wanted to reserve the right to sue Twitter executives.
Later that week, Musk tried to stop the trial while promising to raise the $13 billion in debt financing to complete the deal, accusing Twitter of “not taking yes for an answer.” Twitter declared Musk’s proposal “an invitation to more rascality and delay”. The judge gave Musk until October 28 to close the deal or face a trial in November.
While some jurists were surprised, the court decision proved to be consistent. The deal was closed in the original terms, without trial. Twitter’s hefty lawyer bills, which can be as high as $100 million, must be paid for from the cash flows of the company that Musk controls.
In typical bombastic style, Musk visited Twitter’s San Francisco office this week carrying a sink, and tweeted “Drop it.” [trocadilho com a palavra “sink”, pia em inglês] —a meme more commonly used on Reddit or Tumblr than at the end of a takeover battle with billions of dollars at stake.
But Twitter advisers — and investors who managed to sell at a high price — can be forgiven for thinking they had the last laugh.
“The system worked,” said a Twitter lawyer. “Modern merger settlement technology and Delaware law were very adequate.”
(Collaborated by Cristina Criddle, in London)
Translated by Luiz Roberto M. Gonçalves