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Can Elon Musk renegotiate a lower price for his Twitter deal? -by Ecork

Elon Musk’s fortune is estimated at $240 billion

Twitter Inc shares have fallen to their lowest level since the social media company agreed to sell itself to Elon Musk for $44 billion on April 25, raising questions about whether the world’s richest person would try to renegotiate the deal.

On Tuesday, the implied probability of closing the deal at the agreed-upon price fell below 50% for the first time, when Twitter shares fell below $46.75. That’s halfway between the deal price and the stock price before Musk revealed he had amassed a stake in the social media company on April 4.

The stock closed at $47.26, giving the company a market value of $36 billion.

The news that Musk will lift the ban on former President Donald Trump’s Twitter account, despite its political importance, did not move the stock.

Twitter shares tumbled along with the broader crash in tech stocks, as investors worry about inflation and a possible economic slowdown. Some investors, such as research firm Hindenburg Short, have speculated about whether Musk will try to negotiate a lower price for the deal before closing.

Musk has not indicated that he plans to reopen negotiations and his representatives have declined to comment on the issue.

Here are answers to some of the main questions.

Why does Musk want to renegotiate the deal?

Musk has an estimated net worth of $240 billion according to Forbes, yet most of his fortune is tied up in shares of Tesla Inc, the electric car maker that he drives.

Musk has already moved to raise some money to fund the Twitter acquisition. He sold $8.5 billion worth of Tesla stock and took out a $12.5 billion margin loan for his Tesla stock. Last week, it reduced that margin loan to $6.25 billion after bringing in co-investors. Musk said in a regulatory filing that he may seek more funding for the deal.

While Musk said he doesn’t care about the economics of buying Twitter, some investors believe the 27% decline in Tesla shares since he revealed his stake was driven in part by concerns he might have to sell more shares. So Tesla stock would be under less pressure if Musk could negotiate a lower acquisition price. Some participating investors may pay it if they become concerned about overpaying.

How can Musk negotiate a lower price?

Musk could threaten to walk away from the deal unless Twitter’s board agrees to reopen negotiations. It is contractually obligated to pay a $1 billion dismantling fee, but Twitter will have to sue for more damages than that or try to force Musk to complete the deal.

There is plenty of precedent for renegotiation. Several companies re-priced agreed acquisitions when the COVID-19 pandemic broke out in 2020 and triggered a global economic shock.

In one case, French retailer LVMH threatened to walk away from a deal with Tiffany & Co. The US jewelry retailer agreed to cut its purchase price by $425 million to $15.8 billion.

Simon Property Group Inc, the largest operator of malls in the United States, managed to reduce its purchase price of a controlling stake in rival Taubman Centers Inc by 18% to $2.65 billion.

Are there risks in trying to renegotiate?

There is no certainty that this strategy will work, and it could end up costing Musk more money.

First, Musk will have to convince Twitter that he is really going. Then there are legal hurdles, including a “specific performance” clause that the social media company can cite to a judge to force Musk to complete the deal.

Acquisitions who lose in such a situation are almost never forced to complete the acquisition, but target companies can seek monetary relief for the abandoned deal price.

Among the companies that fought the acquirers in court was medical technology company Channel Medsystems Inc, which sued Boston Scientific Corp for trying to walk away from a $275 million deal. In 2019, a judge ruled that the deal must be completed and Boston Scientific pushed Medisystems Channel to an undisclosed settlement.

Seeking acquirers sometimes seek recourse to the “material adverse effect” clauses in the merger agreement, arguing that the target company has been significantly hurt. But the language in the Twitter deal agreement, as in many recent mergers, doesn’t allow Musk to get carried away by a deteriorating business environment, such as lower advertising demand or a drop in Twitter stock.

Musk also waived his due diligence right when he negotiated the Twitter deal, trying to get the company to accept his “best and last” offer. This makes it difficult for him to argue in court that Twitter misled him.

(This story has not been edited by the NDTV crew and is automatically generated from a shared feed.)

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