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Shares of Twitter (NYSE:TWTR) are higher for the second day as the dust settles from Elon Musk’s termination of the $44 billion acquisition of the company. Now, the focus has turned to if Twitter can prevail in Delaware court to force the billionaire’s hand to complete the deal. Many think that based on its complaint it has a good chance.
Short-focused firm Hindenburg Research, which correctly predicted that Musk would walk from the deal, has now accumulated a significant long position in Twitter. “Twitter’s complaint poses a credible threat to Musk’s empire,” Hindenburg said.
Former hedge fund manager and current CNBC host Jim Cramer said the Twitter complaint is “damning” and the Delaware chancery will do its best to force Musk to complete the deal. “It is devastating in detail about how horrendous and infantile Musk was in the process,” he added.
Gordon Johnson of GLJ Research, a known Tesla (NASDAQ:TSLA) bear, said Twitter has Musk “dead to rights” to enforce the deal, and Musk himself remains personally responsible for $33.5 billion of the purchase price. He said this could be detrimental to Tesla (TSLA) shareholders.
Johnson points to section “V” of the complaint from Twitter lawyer Wachtell, Lipton, Rosen & Katz, which notes that under the merger agreement the risk of a market decline was Musk’s alone to bear.
That section reads:
V. The market turns
60. The risk of market decline, which was Musk’s alone to bear under the merger agreement, materialized. Soon after signing, the U.S. capital markets took a turn for the worse. Within a week after April 25, 2022, the date the merger agreement was executed, Musk elected to sell 9.8 million Tesla shares to finance the merger at prices as low as $822.68 per share, substantially below their preTwitter-signing price of $1,005 per share. He then promptly Tweeted, “No further TSLA sales planned after today.” But the Tesla stock price kept dropping, putting Musk at risk of needing to pledge yet more Tesla shares to consummate his proposed margin loan and to sell still more to fund his equity commitment.
61. On May 4, 2022, Parent and Musk, faced with needing to pledge more Tesla shares to satisfy the condition that the margin loan not exceed 20% of the value of the pledged stock, decreased the amount of that loan. On May 24, without notifying Twitter, they dispensed with the loan entirely and agreed in a new equity commitment letter to increase Musk’s equity commitment to $33.5 billion. That letter, which remains operative, gives Twitter third-party beneficiary rights to enforce directly against Musk his equity commitment in accordance with its terms and the terms of the merger agreement.
62. Musk remains personally responsible for $33.5 billion of the approximately $44 billion required to complete the transaction
The entire Twitter complaint against Musk can be read on Wachtell, Lipton, Rosen & Katz website here.
