On April 14, 2022, entrepreneur Elon Musk signified his interest to buy Twitter Inc. at a price of US$54.20 per share, amounting to a total transaction value of US$44 billion. Musk's strategic intent was to grow the company into a platform for free speech and expedite its cash flow-positive to make the company profitable. The financing structure for this leveraged buyout primarily relied on a margin loan collateralized by Musk's holdings in Tesla Inc. However, on July 8, 2022, Musk publicly announced his decision to withdraw from the proposed merger. Legal proceedings were pursued against Musk, seeking enforcement of the merger agreement and compelling Musk to fulfill the transaction. With the lawsuit, Musk must decide if his bid is a fair valuation and, ultimately, whether to proceed with or abandon the acquisition of Twitter Inc., carefully weighing possible losses based on the results of the ongoing litigation in the Delaware Court of Chancery.
Cooper Acosta, Atif Ikram, Zhichuan Frank Li
Harvard Business Review (W30166-PDF-ENG)
November 06, 2022
Case questions answered:
- Describe the background of the Elon Musk deal with Twitter.
- Explain the deal terms.
- Does the merger benefit both parties?
- Discuss whether Musk’s bid offers fair value for Twitter’s stock.
- What are the implications of the deal?
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Elon Musk's Twitter Deal: Valuation and Financing of the Leveraged Buyout Case Answers
1.) Describe the background of the Elon Musk deal with Twitter.
Twitter is a microblogging social media that allows you to post short text messages called tweets. Elon Musk is the founder and CEO of Tesla and SpaceX. As of October 27th, 2023, Elon Musk became the new owner of Twitter.
During the course of the negotiation, X Holding I, Inc. was founded on April 19, 2022, to achieve the merger without commercial activity. X Holding II, Inc. is an acquisition subsidiary and is wholly controlled by the parent company. Both X Holding I and II answered to Elon Musk and ceased to exist once the merger was finalized.
2.) Explain the deal terms.
The Merger Structure
Covenants & Agreements
The parties, Twitter Inc. and Elon Musk, agreed on certain covenants and agreements in the interest of the merger.
Twitter must conduct the business of the company and its subsidiaries in the ordinary course of business. It also cannot amend or change the company, the certificate, or the company bylaws of society. Additionally, Twitter cannot issue, sell, or lend any shares.
Elon Musk must furnish the required documentation.
The provision on the no-survival of representation, warranties, and agreement when the merger is effective is favorable to both Twitter, Inc. and Elon Musk.
The provisions on representations and warranties provide some protection for the parties from potential future loss or liabilities if these provisions are not respected. This is favorable for both Elon Musk and Twitter Inc., as well.
The agreement may be…
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