Breakingviews - Breakingviews: Twitter brinkmanship favors Musk exit for a price - Reuters

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Elon Musk’s Twitter profile is seen on a smartphone placed on printed Twitter logos in this picture illustration taken April 28, 2022. REUTERS/Dado Ruvic/Illustration

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WASHINGTON, May 13 (Reuters Breakingviews) - Elon Musk has lost a lot of money since he first took a stake in Twitter. Some $370 billion has disappeared from electric-car maker Tesla’s roughly $800 billion market capitalization since April Fool’s Day, the last trading day before Musk revealed his stake in Twitter. Both companies look like they’re starting the deal breakup dance. If Tesla’s owner wants out, Twitter may grant him the privilege of an exit, for a fair amount of chump change.

The Tesla boss tweeted on Friday that his $44 billion buyout was “temporarily” on hold as he’s waiting for details that confirm Twitter’s calculations on spam and fake accounts. Meanwhile on Thursday Twitter Chief Executive Parag Agrawal let go of two senior employees. Even if the moves were already planned, they don’t reflect a lame-duck CEO. Instead it suggests that Twitter is trying to show it doesn’t need Musk to stay the course.

These are often the first overtures to a broken deal. Buyers try to make a case that their target isn’t all that it had appeared. Sellers try to show, among other things, they can do just fine without the acquisition. If one wants to balk and the other doesn’t, cases may go to court and there’s plenty of scope for that here. The merger contract has a $1 billion break fee for both parties, but also a so-called “specific performance” clause that muddies the pain that Musk could incur.

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That’s where the stakes – and an out-of-court negotiation – come into play. A busted deal would be more painful for Twitter: Short-selling firm Hindenburg Research said on Monday that Twitter’s stock would fall by 50% if Musk walked away. That suggests it’s going to push as hard as it can. Tesla’s stock, meanwhile, was up 6% on Friday, showing Musk has every reason to push in the other direction.

It all suggests that Musk might be willing to pay more than his fair share to call off the ball. And as a huge owner of Tesla shares – with so much of his wealth at stake – even tripling the break fee seems like a drop in the bucket. Twitter’s Agrawal might be willing to acquiesce as the turmoil has already been bad for business. It would appear as if he’s taken the higher road, and importantly it allows both CEOs to shimmy back to their day jobs without a protracted and costly legal battle.

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CONTEXT NEWS

- Elon Musk on May 13 tweeted that his $44 billion takeover of Twitter is “on hold”, pending details supporting the company’s calculation that spam and fake accounts make up less than 5% of overall users. He cited a Reuters story on May 9 about a Twitter disclosure on the issue, which the company has also mentioned in numerous past government filings.

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Editing by Lauren Silva Laughlin and Oliver Taslic

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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