After trying for months to get out of his $44 billion agreement to buy Twitter, Elon Musk told Twitter on Monday night that, actually, he wanted to do the deal — on exactly the original terms. His other big ask: Let’s put the litigation on hold. The two sides are now hashing out next steps, two weeks before they were set to face off in one of the biggest business confrontations of the century.
Here is what we know
Things moved quickly. Twitter got the letter from Musk’s lawyers on Monday, and filed it yesterday morning with the Delaware Chancery Court presiding over the case. In an emergency confidential hearing, the judge instructed the two sides to figure it out and get back to her.
Twitter is wary of pausing its litigation. It’s considering some options in its negotiations with Musk, including getting a court to oversee the deal’s closing (through a consent judgment), and charging Musk interest on any additional time it takes to close the deal.
What we don’t know
Why did Musk change his mind? Was it a reluctance to be deposed on Thursday and Friday? Concerns of further embarrassing his Silicon Valley and Wall Street friends, à la last week’s text message dump? Some piece of undisclosed bad news? Twitter, incidentally, felt very confident in its chances in the Delaware trial.
Is he still hoping bank financing gives him an out? In his letter to Twitter, Musk says he will do the deal “pending receipt of the proceeds of the debt financing.” (Per the terms of the deal, if the bank financing falls apart, he needs to pay only a $1 billion breakup fee.) The banks have already committed to their $12.5 billion — as long as a deal happens by April 2023. Is Musk hoping they try to back out?
Could Twitter stop Musk from using the banks as an out? One route would be to ask the judge to have the banks say in writing that they remain committed to funding the bid. The company could also ask Musk for a letter saying that he is unaware of any conditions that could impede the deal closing.
Do the banks wish they had an out? The leveraged loan market, which Musk is partly relying upon, has weakened in recent months. If the Citrix deal is any indication, the banks lending to Musk, led by Morgan Stanley, could be sitting on big lending losses. Note: They cannot change the terms of their lending agreement.
What are Larry Ellison, Ben Horowitz and Musk’s other friends going to do? It’s not clear whether any or all of the investors who agreed to chip in $7.1 billion to fund Musk’s deal have an out. (Musk had warned that some equity investors might not “come through.”) Would the text message headache or due diligence concerns give them cold feet?
What are Musk’s plans for Twitter? With the ad market slumping, employee morale sinking and lax security accusations swirling, the company is in worse shape than it was in April. But Musk appears bullish again. “Buying Twitter is an accelerant to creating X, the everything app,” he said. If he goes through with it, “Musk’s Twitter will be a wild ride,” The Times’s Kevin Roose predicts.
The law firms representing Musk and Twitter on deal work and litigation stand to earn hundreds of millions for their months of labor, according to estimates from competitors and colleagues familiar with the matter. The firms declined to comment.
The deal was always likely to be a lawyer’s dream, fee-wise. While Musk’s bid came together relatively quickly this spring, the talks rapidly became mired in lengthy legal wrangling, leading to many billable hours. “There is a lot of discovery to do,” Peter Glennon, a legal expert, told The American Lawyer in August. “We aren’t just looking at emails. We are looking at Slacks, Teams, texts, all of it.” (John Coffee, a Columbia law professor, previously estimated that legal fees could have run to $1 billion.)
The key players:
Musk is represented by Skadden on the deal side and by Skadden and Quinn Emanuel in litigation. Top partners at the firms bill about $2,000 an hour. Lawyers estimated to DealBook that the firms could be charging about $30,000 to $40,000 an hour, or $5 million to $8 million a month. That means Musk could have paid about $50 million, plus perhaps another $50 million in the run-up to litigation.
Twitter relied on Wilson Sonsini and Simpson Thacher, where top partners also most likely bill about $2,000 an hour, for deal work. And for litigation it’s primarily relying on Wachtell, the blue-chip firm known in legal circles for its bespoke (and opaque) pricing, including hourly billing, flat fees and contingency deals. Depending on its arrangements, Wachtell could bring in $100 million to $200 million, lawyers estimate.
Between those firms alone, the Twitter case has probably already generated about $150 million to $300 million in fees. But then add in all of the other lawyers involved in litigation, depositions, the deal and more. And that figure could grow if this actually goes to trial, or otherwise goes awry.
Source: New York Times
Image source: Reuters
