6 ms·

Twitter is demanding "specific performance" (i.e. complete the transaction) which is unrealistic given those financing provisions. No court can force all the ot

Twitter is demanding "specific performance" (i.e. complete the transaction) which is unrealistic given those financing provisions. No court can force all the other parties to close. No financing, no transaction.

tptacek 4y ago
He has the financing. He secured ~1/3rd of the funds based on committed LBO debt, ~1/3rd in margin loans against TSLA, and ~1/3rd in personal equity. Since then, he's been working to minimize the his personal exposure, but he can't just pretend not to own the TSLA stock he's borrowing against and selling to close the deal.
- gabereiser 4y ago
  Financing has strings. I’m sure his partners want to make sure the mDAU is accurate as well. The entire value of Twitter depends on it.
  - tptacek 4y ago
    They can't want that, because it was a term Musk explicitly waived, publicly and notoriously, before he attempted to finance the deal. It was newsworthy, and well covered, that Musk secured the 13Bn of LBO debt in the first place.
    - gabereiser 4y ago
      What the media says (including musk) and what the term sheet says are two different things. If he mentioned mDAU could be fraudulent to anyone involved, they would be interested to hear what he had to say about it. I believe though that this is a move to reduce the risk and monies he has to pay to try to get a better deal ($30b perhaps?)
      - admax88qqq 4y ago
        > they would be interested to hear what he had to say about it. They can be interested all they want, doesn't mean they can back out of a deal unless they can demonstrate fraud or gross negligence on behalf of Twitter.
        tptacek 4y ago
        They can't just demonstrate "fraud" or "gross negligence". They have to demonstrate a "material adverse effect", which, as Matt Levine shorthands it, is something on the order of a 40% drop in profitability --- not the stock price, but the fundamentals of the company. Not happening.
        dvt 4y ago
        [flagged]
        couchand 4y ago
        20% is on the order of 40%
        shkkmo 4y ago
        "in/on the order of" does not mean "the same order of magnitude as" by rather "approximately the same as". Nobody would call 20% approximately the same as 40% so you are incorrect.
        tptacek 4y ago
        All I know is, he's a former M&A lawyer, unlike any commenter here.
        1R 4y ago
        What if 40% of the percentage of users that twitter proposes are real people are actually bots? Wouldn't that qualify as material adverse effect?
  - contrast 4y ago
    No, it doesn’t. The entire value of Twitter depends on their entire monetization. That comes from revenue per mDAU, not just mDAU. Why should a disinterested, objective financier care if $1 billion dollars of revenue came with a real figure of 20% spambots rather than the estimated 5%? That just means true revenue per mDAU is something like 18% better than estimated. If the real number is 50%, then true revenue per user is about double. If the real number is actually 99%, true revenue per user is about 20x. There would also probably be some very quick wins for improving the quality of the service. There may be an argument for needing accurate mDAU figures - but Musk isn’t making one, the financiers didn’t ask for them, the market has NEVER had accurate figures for social media anyway, and there’s no legal standard for it.
    - smaryjerry 4y ago
      It’s not a good thing to have more bots at the same revenue because you aren’t just buying a companies past performance but their future performance. If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much.
      - Marsymars 4y ago
        > If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much. That’s if you assume that advertisers have no idea what the result of ad impressions are. (Which is an argument I’m sympathetic to, but isn’t flattering to the ad industry.) If they do have an idea of the results of ad impressions, it would mean that their ads are actually proportionally more effective than they thought, since their revenue brought in by ads has stayed the same but with fewer impressions.
- hackcasual 4y ago
  I believe the agreement would require him to finance the deal directly From the proxy agreement > cause the Equity Investor [Musk] to fund the Equity Financing, or to enforce the Equity Investor's obligation to fund the Equity Financing directly, and to consummate the Closing.
  - tptacek 4y ago
    I'm less certain of that, because the structure of the financing was worked into the deal, as I remember (or at least remember reading about).
admax88qqq 4y ago
I think Twitter is working their way towards suing for damages. Sure you probably can't force the transaction to complete but you can sue for it and when the other parry demonstartes that they're not willing to complete a transaction they committed then you start suing for damages.
voisin 4y ago
Specific performance would apply to Musk as purchaser, not hypothetical lenders that aren’t party to the agreement. If he can’t find debt, then he would presumably have to liquidate more Tesla stock to pay the full price.
- colinmhayes 4y ago
  He's already found the debt. His banks agreed to margin and twitter leveraged loans before the deal was even signed.
  - hef19898 4y ago
    So if Twitter wins Musk has to go through with his margin loans on Tesla stock. Ehich, at the current state of things, exposes to quite some risk of loosing tge ability to back up the loans with Tesla stock if share prices drop under a certain level. Maybe he just realized that risk and that's why he wants out.
    - HWR_14 4y ago
      Musk doesn't have to use his Tesla margin loan, and he's already claimed he wasn't going to. He has to get the money somehow, but he could just sell enough SpaceX if he felt like it.
danielmarkbruce 4y ago
I think 6.10f leaves him in trouble. No financing, yes transaction.

tptacek 4y ago

He has the financing. He secured ~1/3rd of the funds based on committed LBO debt, ~1/3rd in margin loans against TSLA, and ~1/3rd in personal equity. Since then, he's been working to minimize the his personal exposure, but he can't just pretend not to own the TSLA stock he's borrowing against and selling to close the deal.

gabereiser 4y ago
Financing has strings. I’m sure his partners want to make sure the mDAU is accurate as well. The entire value of Twitter depends on it.
- tptacek 4y ago
  They can't want that, because it was a term Musk explicitly waived, publicly and notoriously, before he attempted to finance the deal. It was newsworthy, and well covered, that Musk secured the 13Bn of LBO debt in the first place.
  - gabereiser 4y ago
    What the media says (including musk) and what the term sheet says are two different things. If he mentioned mDAU could be fraudulent to anyone involved, they would be interested to hear what he had to say about it. I believe though that this is a move to reduce the risk and monies he has to pay to try to get a better deal ($30b perhaps?)
    - admax88qqq 4y ago
      > they would be interested to hear what he had to say about it. They can be interested all they want, doesn't mean they can back out of a deal unless they can demonstrate fraud or gross negligence on behalf of Twitter.
      - tptacek 4y ago
        They can't just demonstrate "fraud" or "gross negligence". They have to demonstrate a "material adverse effect", which, as Matt Levine shorthands it, is something on the order of a 40% drop in profitability --- not the stock price, but the fundamentals of the company. Not happening.
        dvt 4y ago
        [flagged]
        couchand 4y ago
        20% is on the order of 40%
        shkkmo 4y ago
        "in/on the order of" does not mean "the same order of magnitude as" by rather "approximately the same as". Nobody would call 20% approximately the same as 40% so you are incorrect.
        tptacek 4y ago
        All I know is, he's a former M&A lawyer, unlike any commenter here.
        1R 4y ago
        What if 40% of the percentage of users that twitter proposes are real people are actually bots? Wouldn't that qualify as material adverse effect?
- contrast 4y ago
  No, it doesn’t. The entire value of Twitter depends on their entire monetization. That comes from revenue per mDAU, not just mDAU. Why should a disinterested, objective financier care if $1 billion dollars of revenue came with a real figure of 20% spambots rather than the estimated 5%? That just means true revenue per mDAU is something like 18% better than estimated. If the real number is 50%, then true revenue per user is about double. If the real number is actually 99%, true revenue per user is about 20x. There would also probably be some very quick wins for improving the quality of the service. There may be an argument for needing accurate mDAU figures - but Musk isn’t making one, the financiers didn’t ask for them, the market has NEVER had accurate figures for social media anyway, and there’s no legal standard for it.
  - smaryjerry 4y ago
    It’s not a good thing to have more bots at the same revenue because you aren’t just buying a companies past performance but their future performance. If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much.
    - Marsymars 4y ago
      > If advertisers thought they were buying 1M real person impressions and it turned out to be half bits, next time they pay you money they would only want to pay half as much. That’s if you assume that advertisers have no idea what the result of ad impressions are. (Which is an argument I’m sympathetic to, but isn’t flattering to the ad industry.) If they do have an idea of the results of ad impressions, it would mean that their ads are actually proportionally more effective than they thought, since their revenue brought in by ads has stayed the same but with fewer impressions.
hackcasual 4y ago
I believe the agreement would require him to finance the deal directly From the proxy agreement > cause the Equity Investor [Musk] to fund the Equity Financing, or to enforce the Equity Investor's obligation to fund the Equity Financing directly, and to consummate the Closing.
- tptacek 4y ago
  I'm less certain of that, because the structure of the financing was worked into the deal, as I remember (or at least remember reading about).

admax88qqq 4y ago

I think Twitter is working their way towards suing for damages. Sure you probably can't force the transaction to complete but you can sue for it and when the other parry demonstartes that they're not willing to complete a transaction they committed then you start suing for damages.

voisin 4y ago

Specific performance would apply to Musk as purchaser, not hypothetical lenders that aren’t party to the agreement. If he can’t find debt, then he would presumably have to liquidate more Tesla stock to pay the full price.

colinmhayes 4y ago
He's already found the debt. His banks agreed to margin and twitter leveraged loans before the deal was even signed.
- hef19898 4y ago
  So if Twitter wins Musk has to go through with his margin loans on Tesla stock. Ehich, at the current state of things, exposes to quite some risk of loosing tge ability to back up the loans with Tesla stock if share prices drop under a certain level. Maybe he just realized that risk and that's why he wants out.
  - HWR_14 4y ago
    Musk doesn't have to use his Tesla margin loan, and he's already claimed he wasn't going to. He has to get the money somehow, but he could just sell enough SpaceX if he felt like it.

danielmarkbruce 4y ago

I think 6.10f leaves him in trouble. No financing, yes transaction.