April 26, 2022

Twitter: The Elon Stuff in the Merger Agreement

Twitter filed its merger agreement last night.  The 8-K filing has a fairly detailed description of the agreement and based on the description and a quick flip through the merger agreement it looks fairly standard issue.  The merger agreement includes a limited specific performance clause compelling Elon Musk to fund his equity commitment if the other financing is set to go and the closing conditions are met. It also gives Twitter the ability to respond to unsolicited proposals and allows it to terminate the deal to accept a superior proposal.

The deal has both termination and reverse termination fees in the amount of $1 billion. That’s about 2.3% of the deal’s value, but reverse termination fees can get fairly large so this one doesn’t appear to be “higher than average” as some media reports suggested it would be. For example, the $70 billion Activision Blizzard deal has a reverse termination fee that could be as much as $3 billion, or 4.3%, and the most recent Houlihan Lokey data doesn’t make the size of the fee look outsized either.

Based on the terms of the regulatory cooperation covenant, it also doesn’t look like the parties anticipate any significant regulatory hurdles. I’ll read it in more depth over the next couple of days and blog about it if I find some interesting tidbits (or if somebody else does). Speaking of interesting tidbits, there are a couple worth noting, and not surprisingly, they relate to Elon Musk himself.  

– The definition of a “Company Material Adverse Effect” on p. 5 includes a customary carve-out for an MAE arising out of the negotiation and execution of the agreement, but what’s unusual about it is that it specifically says that the carve-out extends to any MAE arising “by reason of the identity of Elon Musk.” Although carves from MAE clauses based on the identity of the buyer are common, I don’t think I’ve ever seen one that calls out an individual by name.

– Section 6.8 of the agreement contains the customary covenant obligating both parties to coordinate communications about the transaction and generally prohibits public statements that aren’t required by law unless one party obtains the other’s consent.  But there’s a one of a kind carve out in this section that says the following: “Notwithstanding the foregoing, [Elon Musk] shall be permitted to issue Tweets about the Merger or the transactions contemplated hereby so long as such Tweets do not disparage the Company or any of its Representatives.”

While we’re on the topic of tweets, Twitter also filed a handful from its founder yesterday as DEFA14A material. I suspect the deal team will be chasing tweets down until this thing closes. Like I said yesterday, being the junior associate on this deal (or the low person on Twitter’s law department team) has got to be no fun.

John Jenkins