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Well, we have bad news for those of you who were expecting a swift conclusion to the ongoing soap opera between Elon Musk and Twitter after the CEO of Tesla agreed to revive the original Twitter takeover deal earlier this week. The drama continues!
In recently filed court documents that are now being quoted by Reuters and New York Times, Elon Musk has asked the Delaware Court of Chancery to delay the trial set to commence on the 17th of October, citing the need to secure debt financing for the deal.
Rough est of the extra interest exp $TWTR will have vs expectations at time of deal
SOFR has moved 2.75%...on $13B = ~$350mm.
Also, the sr notes and sr unsec notes likely go to bridge, which have spreads at least 250 bp higher than expected ($6b = ~$150mm)
total $500mm (extra)
— Rob Schmied (@rschmied) October 6, 2022
As we noted in a recent post, Elon Musk is working to secure $13 billion in debt financing. However, in a world rocked by soaring interest rates and crashing bond prices, this is anything but easy. As an illustration, that $13 billion financing now entails additional interest expense of around $500 million, given the significant increase in the benchmark rates since April.
Nonetheless, Elon Musk has notified the court today that he expects to close the Twitter deal by the 28th of October.
Of course, debt financing is only one part of this game. The CEO of Tesla also needs to secure $24.51 billion in equity financing. In April-May, Elon Musk sold around $8.5 billion worth of Tesla shares to fund his equity commitments under the original Twitter takeover deal. Then, back in August, the CEO of Tesla sold $6.9 billion worth of Tesla shares. This means that he has so far accumulated $15.4 billion in funding by selling a portion of his Tesla stake. Musk has also secured $7.1 billion in equity commitments from the likes of Larry Ellison, Binance, Sequoia, the Saudi Prince Al Waleed, etc. However, this still leaves a $2 billion deficit without accounting for Twitter’s RSUs – which will increase this equity shortfall to around $5.4 billion.
Musk refused the offer based on the conditions Twitter requested. Spiro said Twitter's conditions were 'self-serving'
— Ed Ludlow (@EdLudlow) October 6, 2022
Meanwhile, Elon Musk’s lawyer Alex Spiro just disclosed an interesting tidbit. According to Spiro, Twitter agreed to shave off “billions” from the $44 billion purchase tag. However, the attendant conditions were not palatable to Musk, who then refused to entertain this notion.
Perhaps best denoting his frustration with this saga, Elon Musk’s lawyers noted in today’s court filing:
“Twitter will not take yes for an answer. Astonishingly, they have insisted on proceeding with this litigation, recklessly putting the deal at risk and gambling with their stockholders’ interests.”
The filing goes on:
“Proceeding toward trial is not only an enormous waste of party and judicial resources, it will undermine the ability of the parties to close the transaction.”
So, for now, at least, all of us are stuck in a proverbial limbo, destined to consume the minutiae of this case with admirable gusto.
Update: Twitter has Opposed Elon Musk's Plea to Delay the Trial
In its own filing with the Delaware Court of Chancery, Twitter has taken the position that the commencement of the formal trial on the 17th of October will not be an impediment to the closing of the deal, which Twitter believes should take place next week. Consequently, the social media giant has opposed any delays to the trial:
"Twitter opposes Defendants’ motion. The obstacle to terminating this litigation is not, as Defendants say, that Twitter is unwilling to take yes for an answer. The obstacle is that Defendants still refuse to accept their contractual obligations."
The document goes on to note:
"Now, on the eve of trial, Defendants declare they intend to close after all. “Trust us,” they say, “we mean it this time,” and so they ask to be relieved from a reckoning on the merits. To justify that relief, they propose an order that allows them an indefinite time to close on the basis of a conditional withdrawal of their unlawful notices of termination coupled with an explicit reservation of all “claims and defenses in the event a closing does not occur.” Defendants’ proposal is an invitation to further mischief and delay."
As a punchline against Elon Musk, Twitter noted:
"Defendants can and should close next week. Until they do, this action is not moot and should be brought to trial."
Update 2: The Delaware Court of Chancery has Accepted Elon Musk's Plea
The court has granted Elon Musk's request and stayed the trial until 05:00 p.m. on the 28th of October. If both parties do not manage to close the takeover transaction by then, the court will issue a new trial date for November.